Shuffling The Deck?

It may be time to retool your portfolio of rewards credit cards – particularly if you’re not using those rewards

Since the COVID-19 pandemic hit the United States in early 2020, many of us have dramatically changed our daily habits, including how and where we shop, what we spend our money on and – particularly – if and how we can travel. So a credit card that offers rewards for flying and hotel stays likely isn’t getting the same workout it did back in 2019.

Which can beg the question: if you aren’t using the rewards you’ve racked up on your rewards credit card, is it time to change your strategy and add new card (or two) or prioritize your spending on a different card with benefits that suit your life today? That really depends on if you can find a better deal.

While we can see light at the end of the COVID tunnel as more people become vaccinated every day, millions of Americans are still out of work or underemployed. That creates economic uncertainty which can keep credit card companies from offering big-ticket incentives to recruit
new customers.

Here are some other steps to take as you consider adding another rewards card to your deck:

Examine your spending habits

To best determine what your new rewards card would need to cover, take a look back at your last 12 months of spending by reviewing your credit card statements. With shutdowns and travel restrictions connected to COVID-19 keeping millions out of the friendly skies, it’s
likely your spending habits for 2020 and 2021 look much different these days.

New life for old cards

Before you cut up or cancel an old card (which, in and of itself, may hurt your credit score, particularly if it’s an older card or one with a large spending limit) take a second look. Many credit card companies have expanded the categories for earning and redeeming points. Plenty of travel credit cards are now offering bonus categories for groceries or allowing users to redeem travel credits for streaming services.

See what’s out there

Things have probably changed since the last time you considered your options when it comes to rewards credit cards. So be sure to shop around before you apply for a new card. If you’re not sure you will use miles anytime soon, look for a cash-back card instead. Those are rewards you’re pretty much guaranteed to use.

Don’t take it to the limit

Bigger is almost always better when it comes to credit limits. That’s because you will need a credit limit that is significantly higher than the amount you plan to charge on your card each month. Why is that? Because one of the things used to determine your credit score is your
utilization. That’s the amount of credit available to you that you actually use. So if you get a credit limit of $15,000 and use $10,000, you’re using 66%. That’s considered way too much and will likely have a negative impact on your credit score. It’s best to use only 10 to 30% of your available credit to maintain the best score.

Use caution before closing an account

If you do decide that you’d like to trim your card portfolio, don’t close a credit card account outright, especially if you’ve had the account open for years. The history you’ve built with the card issuer contributes to a healthy credit score. Instead, ask the credit card company if you can downgrade to a lower or no fee card. That means you can keep the credit line open and the average age of your credit card account isn’t impacted.

Watch out for interest and fees

When looking at new offers, always read the fine print. Also watch out for the varying interest rates and other associated fees. If you can’t pay your card off right away and you have to carry a balance, it’s not worth getting a new reward card that charges a fee. The cost of the interest alone will eat up any rewards you earn.

Jean Chatzky

Jean Chatzky