Overview
In the first two parts of our Credit Card 101 series, we covered the fundamentals of credit cards and how to choose the right card(s) to maximize your reward points. To round up the last part of our series, we will provide a general guide to help you navigate through the credit card portal. Additionally, we will offer practical tips and tricks to help you build great habits for using your credit card effectively.
Navigating the Portal
Basic Understanding
Here are the main components to help you navigate through your banking portal after getting your first-ever credit card.
Credit Limit: This is the highest balance you can carry at any given time without incurring penalties or restrictions. Some key factors that contribute to the credit limit are credit score, credit history, existing credit limits, type of credit card, income, and employment. This limit is subject to adjustment over time based on the above-mentioned factors.
Current Balance: This is the total amount you owe to your credit card since the last billing cycle ended (the billing cycle typically lasts around a month). This may not include all transactions such as your most recent transactions, pending authorizations, or interest that’s accumulated since your last statement date. Also, the current balance is different from the statement balance. The statement balance is the total amount you owe on your credit card at the end of the billing cycle. To avoid additional charges like interest and late fees, always pay the statement balance by the end of the billing cycle.
Minimum Payment: This is the minimal amount of payment (typically 2-5% of your statement balance) you are required to pay by the end of the billing cycle to keep your account in good standing and avoid any late fees or penalty APRs. By only paying the minimum payment and carrying a balance from month to month, you will incur significant interest charges over time unless you’re benefiting from an intro 0% APR.
Partnered Offers: This section is where you can find and activate special deals from various merchants, offering cashback or discounts. In some cases, American Express will even provide statement credits or extra membership reward points.
Travel Portal: Cardholders can book travel services, including flights, hotels, car rentals, and experiences. These portals often feature exclusive deals, enhanced rewards, and special perks, helping cardholders get extra value. While you can utilize your points via the travel portal, you can often score better deals by transferring your points to travel partners.
How to Use Points
The most effective strategy we recommend for maximizing your points is to transfer them to travel loyalty programs offered by airline and hotel partners. It’s important to note that not all cards offer this option, and each credit card issuer has its list of travel partners eligible for point transfers. To help you navigate this process and make the most of your points for travel, stay tuned for our upcoming articles on Points Transfer to Travel Partners by subscribing to our Newsletter to get the latest updates. For now, we advise safeguarding your points and avoiding immediate redemption for cash back, gift cards, or merchandise purchases.
Tips & Tricks:
Here’s a section of general tips & tricks on managing credit cards:
- Always pay your bill (statement balance) on time and in full every month
This is one of the most important yet often overlooked tips. This will save you from a whole lot of troubles from interest charges, late fees, and credit scores decrease to financial stress. Especially if your main goal is to maximize reward points for travel, you must have the financial capability to ensure all your bills are paid on time and in full. If you can’t, and are considering relying on the intro 0% APR or making minimum payments, reconsider getting a credit card. Additionally, auto payments can be set up to simplify bill management and ensure timely payments.
- Credit card companies usually offer a one-time courtesy of waiving late fees. Just call the company and ask!
- Keep credit utilization low
Credit utilization is the ratio of your current credit card balances to your credit limits, reflecting how much of your available credit you are using. This is a key factor in determining your credit score, making up about 30% of your credit score. The general rule of thumb regarding the credit utilization ratio is to keep it below 30%, but we rarely go over 10%.
- Keep non-annual fee cards open and active to avoid hurting credit score
There’s often a misconception that if you don’t use certain credit cards anymore, you should just close them for the sake of simplicity. However, doing so can negatively impact your credit score for several reasons.
- It can increase your credit utilization ratio. When you close a credit card, your total available credit decreases. If your spending remains the same, your credit utilization ratio increases.
- It will shorten your credit history. The length of your credit history is another key determinant of your credit score. Closing an older account can significantly reduce the average age of your accounts, especially if you’re new to the credit card world.
- It can impact your payment history. Although the payment history of a closed account remains on your credit report for up to 10 years, the account no longer contributes to ongoing positive history payments. Additionally, few active accounts mean fewer opportunities to demonstrate responsibility for credit management, which all of these can contribute to a higher credit score.
So in general, keep all your non-annual fee cards open even if you don’t actively use some of them anymore.
- Wait at least 3-6 months between credit applications
When you apply for a new credit card, it will result in a hard inquiry, which is a credit check conducted by a creditor. This can temporarily lower your credit score. Waiting at least 6 months between applications allows your credit score to recover from the previous inquiry before another is added. While conventional wisdom advises this approach, strategically opening multiple cards within 6 months can maximize potential points earned, especially if you anticipate significant upcoming expenses.
- Chase 5/24 Rule
The Chase 5/24 rule is critical to understand. If you have opened five or more credit card accounts from any bank within the past 24 months, you will likely be denied for most Chase credit cards. To avoid this, prioritize applying for Chase cards if you are nearing the 5/24 limit.
- Review your account online regularly to track spending and avoid fraud
Credit card debt is a significant issue in America, often stemming from overspending and insufficient account monitoring. Regularly checking your account helps you track spending habits, stay within your budget, and identify unnecessary expenses for adjustment. Furthermore, according to Security.org’s 2023 Credit Card Fraud Report, 65% of U.S. adults have experienced a fraudulent card charge at least once, which amounts to around 151 million individuals. So it’s great to develop a routine to monitor your credit card account(s) to detect unauthorized transactions early to prevent further unauthorized use of your account.
This marks the end of our Credit Card 101 series. We trust that the information provided in these three parts has equipped you with the foundational knowledge to maximize your reward points effectively. But remember, this is just the beginning. The world of credit card rewards is vast, with endless opportunities to score deep-value deals on flights and hotels. Stay tuned to our blog for more insights, tips, and strategies on how to optimize your credit card rewards and achieve great redemption values. Your journey to mastering credit card rewards is ongoing, and we’re here to help you every step of the way!