Tuesday, November 6, 2007

On Credit Card Rewards and My Grandfather's Advice

My maternal grandfather was a rags-to-riches story, and aside from his example of hard work and business savvy, he gave me one piece of financial advice: he told me to get a credit card with rewards and do all my spending with it. He showed me part of a statement in which he'd gotten more than $1,000 in cash-back bonuses in one month alone.

I didn't take his advice. In fact, I argued with him at the time, believing credit cards to be destructive and impossible to manage. I didn't get one until I was in my mid-twenties, and then I started with a secured card. Six months ago, I got a Discover card with some type of reward system that I don't fully understand and I've been using it for auto-drafts of my cell phone bill and other miscellaneous (but planned) expenses.

Lately, however, I have been thinking that perhaps I am not using credit as the tool it can be. I have a very good credit score, I have proved to myself that I have the discipline to handle a credit card, and then I saw Dumb Little Man's post this morning about how to really maximize credit card rewards.

A few things of note from his post:
#2. Don't be a sucker for promo rates.
I keep seeing commercials for the Chase credit card which changes what you get points on each month depending on your spending habits and which gives you like 200% points back or something equally ridiculous. While I knew there had to be a catch somewhere, I bet this is exactly where it is--I don't even know what my Discover card's rate is (I just see that I have earned x dollars in cash back when I log in to my account), and I wonder if it is also a promo rate that probably just expired since I passed the 6-month mark. This is definitely something for me to watch out for.

#6. Take advantage of the "minor" benefits.
As I am still beginning to use a "real" credit card, I'm discovering some of the biggest benefits to using one--the protection they afford which debit cards and cash do not. One of my debit card numbers was stolen earlier this year, and charges of around $30 went through before I caught the fraud. Luckily, I closed the account down before another $1,100 in charges went through, but it still took me six weeks to get that initial $30 back. If it had been a credit card, that wouldn't have happened. Also, I had a subscription to the New York Times which I ended up cancelling because they would bill me three times in one week, or different amounts, and couldn't give me justification for the charges. I took it up with Discover, who took care of it for me, and then I cancelled the subscription. In addition to these protections (and more along the lines of what Dumb Little Man is talking about), apparently these rewards cards also entitle you to certain perks like roadside assistance or extended warranties. So, I should use the credit card for any purchases which are likely to need an extended warranty, thereby garnering myself more rewards points as well (as purchases requiring an extended warranty tend to be higher cost anyway).

I think this is going to be my financial goal for the next two months--do some research, find a card that gives me rewards I will find useful and the earning of which I understand, and figure out which of my expenses I can put on the credit card to pay off in full each month. I do not want to have a slew of cards open in my name, but this is the prime time of my life to find a good rewards card. I don't have much credit history, especially since I closed and cancelled the first secured card I had--for all practical purposes, I only have six months' worth of credit history because of that.

I will end up changing my habits a bit--I currently try to pay cash for everything that I can, but there are clearly some regular expenses I can put on the credit card to get the points (like dance studio costs or cable and electricity). My roommate gets free trips from JetBlue with her rewards card...I wonder what I can get?

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