Spotlight
8 times youβre using the wrong credit card
Credit cards can help save money and maximize benefits, but only if you use them correctly. Here are eight mistakes not to make when it comes to using credit cards.
Which card is the right card?
Updated
Thereβs no such thing as a universal best credit card. The right card for you depends on your lifestyle, your goals and your credit history. For instance, if youβre looking for travel rewards but your friend is building credit, the best card for each of you will differ greatly.
And while there may not be one best card for you β the average American has about three cards, according to a 2021 Experian study β there are many times a card can be wrong for a specific situation.
Here are eight times you could be using the wrong credit card, and what you can do instead.
1. You're still using your starter credit card
Updated
You may have started out by building your credit with a secured card, student card or alternative card, but once your credit is in better shape, it may be time to upgrade.
If youβve used a starter card responsibly by keeping your utilization rate low and paying balances in full every month, you may qualify for a card thatβs a better fit now. A different card could offer a higher credit limit, better rewards earnings and perks like cellphone protection and travel benefits. Some card issuers may automatically upgrade your card once youβve reached certain thresholds, while others may not. Contact the issuer to check your options.
2. You're not using a card enough to earn the sign-up bonus
Updated
New cardholders can often earn a lucrative welcome bonus but usually with a caveat: You have to spend a minimum amount within a specific time frame to get it. Note the spending requirements for a cardβs sign-up bonus, and use the new credit card enough by the deadline. If you continue to pay with an older credit card thatβs already in your wallet, you risk missing out on the bonus if you donβt spend enough on your new card.
A little planning can help. Think about upcoming big purchases you need to make, such as a car repair or a new laptop. Just one of those could be enough to hit the bonusβs spending requirements.
3. You're using a store-specific card
Updated
Itβs true a store credit card can save you money, especially if you are a frequent, heavy spender at that store. However, the rewards earned with a store credit card are often only redeemable at that store, limiting their usefulness.
Most shoppers would be better off using a general rewards credit card and earning more flexible rewards. Some cards have elevated rates for online shopping purchases, while others earn as much as 5% back at popular merchants like Target, Walmart and Amazon.
4. You didn't realize 5% cards take extra work
Updated
Several cards boast a top 5% cash-back rate in popular spending categories like grocery stores, restaurants and gas. The catch, though, is that youβll have to do some work to earn that rate. In most cases, youβll need to track categories: Qualifying 5% purchases may rotate quarterly, or you may have to choose your own categories. If youβre spending outside of those categories with this card, youβll likely earn a paltry 1% instead of the juicy 5% you think youβre earning.
Most times, youβll have to activate the bonus categories before the issuerβs deadline to earn the 5%, even if youβre spending in the right category. Plus, youβll likely run into spending caps in those 5% bonus categories; once you hit those caps, the rewards rate drops to 1%. For those who find a 5% card to be high maintenance, opt for one that earns a flat 2% cash back on every purchase instead.
5. You mix up the card names
Updated
According to a 2020 NerdWallet study, 14% of Americans view credit cards as βcomplicated,β and itβs not hard to see why. Some issuers offer suites of cards in the same family and have names that are nearly identical. The logos of some issuers are strikingly similar, too. Perform a quick audit of your credit cards to make sure that they are the cards you intended to get. Cards that look and sound nearly the same may be worlds apart in terms of fees and rewards structure.
6. You're regularly using a balance transfer card for purchases
Updated
Balance transfer cards can be excellent tools for paying off debt. They consolidate several debts into one place, making them easier to keep up with, and they can give you a breather on interest for many months. However, if youβre using a balance transfer card for everyday expenses as well, it will be hard to whittle that balance to $0. Plus, many balance transfer cards donβt come with rewards. Leave the balance transfer card at home but take the cash-back card with you β and be sure to make regular payments toward both.
7. You aren't using the right card for that purchase
Updated
It pays to know the rewards rates for all of your credit cards. Say you have two credit cards, one that earns 4% on gas and another that earns only 1%. Using the 4% card whenever you fill up would return $30 more if you spent $1,000 annually on gas. That $30 may not seem like a lot, but small amounts add up, especially if you have multiple rewards credit cards. To help keep track of different rewards rates, you could label your cards with sticky notes or keep a small reference guide in your wallet.
Often youβll have to keep spending caps in mind, too. Issuers typically cap earnings on their highest rewards rates after you reach a certain amount of spending in a particular category. Make sure you track your progress toward that cap and switch to another card with a better rate when you reach it β until the limit resets.
8. You're not using a credit card at all
Updated
Though they may look and feel virtually the same, a debit card is very different from a credit card. Credit cards offer protections and perks that debit cards (and cash) do not. You can earn cash back and other rewards with credit cards that you wonβt get with debit, and itβs often easier to recover from losing a credit card than a wallet full of cash. More importantly, responsible credit card use builds your credit score, which can translate into more favorable loan terms and insurance rates, among other money-saving benefits.
PennyWise podcast: 5 tips to help avoid credit card debt
UpdatedAs featured on
Fighting back against credit card fraud will take time and discipline, but the effort is worth it, no matter the amount stolen from you.
You went in for an oil change. You left with an itemized bill as long as your arm. Here's why.
With so many incentives to shop, itβs tough to predict which bargains will actually be worthwhile. Here are a few tips for this Black Friday.
