There is no better universal credit card. The right card for you depends on your lifestyle, goals and credit history. For example, if you’re looking for travel rewards but your friend is building up credit, the best card for each of you will be very different.
And while there may not be a best card for you — the average American has about three cards, according to a 2021 Experian study — there are many times a card could be wrong for a situation. specific.
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
You may have started by building your credit with a secured card, student card, or alternative card, but once your credit is in better shape, it might be time to upgrade it.
If you used a starting card responsibly by keeping your usage low and paying balances in full each month, you could qualify for a card that’s better for you now. A different card might offer a higher credit limit, better rewards, and perks like cell phone protection and travel benefits. Some card issuers may automatically upgrade your card once you reach certain thresholds, while others may not. Contact the issuer to verify your options.
2. You don’t use enough cards to earn the sign-up bonus
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 the sign-up bonus of a card and use the new credit card sufficiently before the deadline. If you keep paying with an old credit card that’s already in your wallet, you might miss out on the bonus if you don’t spend enough on your new card.
A little planning can help. Think about upcoming big purchases you need to make, like a car repair or a new laptop. Just one of these might be enough to meet the bonus spending requirements.
3. You are using a store-specific card
It’s true that a store credit card can save you money, especially if you spend a lot and frequently at that store. However, 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 high rates for online purchases, while others earn up to 5% at popular merchants like Target, Walmart, and Amazon.
4. You didn’t realize that 5% cards take extra work
Several cards offer a 5% higher reimbursement rate in popular spending categories such as groceries, restaurants and gas. The catch, however, is that you’ll have to put in the work to earn that rate. In most cases, you’ll need to track categories: purchases that qualify for 5% may rotate quarterly, or you may need to choose your own categories. If you spend outside of those categories with this card, you’ll likely earn a paltry 1% instead of the hefty 5% you think you’ll earn.
Most of the time, you will need to activate the bonus categories before the issuer deadline to earn the 5%, even if you are spending in the correct category. Additionally, you will likely encounter spending caps in these 5% bonus categories; once you reach these caps, the reward rate drops to 1%. For those who find that a 5% card is high maintenance, opt instead for a card that instead pays a flat 2% cash back on every purchase.
5. You shuffle the names of the cards
According to a 2020 NerdWallet study, 14% of Americans consider credit cards to be “complicated,” and it’s not hard to see why. Some issuers offer card suites in the same family and have nearly identical names. The logos of some transmitters are also surprisingly similar. Do a quick check of your credit cards to make sure these are the cards you wanted. Cards that look and sound almost the same can be very different in terms of fee structure and rewards.
6. You regularly use a balance transfer card for purchases
Balance transfer cards can be great tools for paying off debt. They consolidate multiple debts in one place, making them easier to track, and they can give you a break on interest for several months. However, if you also use a balance transfer card for daily expenses, it will be difficult to reduce this balance to $0. Also, many balance transfer cards don’t come with rewards. Leave the balance transfer card at home, but take the cash back card with you and be sure to make regular payments for both.
7. You are not using the correct card for this purchase
It pays to know the rewards rates for all of your credit cards. Let’s say you have two credit cards, one that pays 4% on gas and another that only pays 1%. Using the 4% card every time you fill up would earn $30 more if you spent $1,000 a year on gas. That $30 might not seem like a lot, but small amounts add up, especially if you have multiple rewards credit cards. To help you keep track of different reward rates, you can label your cards with sticky notes or keep a quick reference guide in your wallet.
Often, you’ll also need to keep spending limits in mind. Issuers typically cap revenue on their highest reward rates after reaching a certain amount of spend in a particular category. Be sure to track your progress towards this cap and switch to another card with a better rate when you reach it, until the cap resets.
8. You don’t use a credit card at all
Although they may look and feel virtually identical, a debit card is very different from a credit card. Credit cards offer protections and benefits that debit cards (and cash) do not. You can earn cash and other rewards with credit cards that you won’t get with debit, and it’s often easier to recover after losing a credit card than a wallet full of cash. . More importantly, responsible credit card use improves your credit score, which can translate to more favorable loan terms and insurance rates, among other money-saving benefits.
By Jae Bratton of NerdWallet
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