The Best Ways To Maximize Credit Card Rewards

There is no shortage of credit card rewards programs. With so many options, it can be difficult for consumers to track expenses to determine if they're enrolled in the best program for their spending. The average person misses out on $200 a year in rewards.

The app Birch Finance effectively tracks all rewards programs and compares spending in each category to determine the best reward card.

“It is so complex that it is not easy for the average user to track their spending to determine what the best card is for them. We wanted to take away the complexity, build a solution and give consumers unbiased recommendations to find the right rewards card for their spending,” Alex Cohen, Birch's co-founder and CEO, told Benzinga. 

How Do Credit Card Rewards Work?

When a consumer signs up for a credit card and it has a reward program, the rewards that come with the program are sometimes tied to a particular grocery store or retailer. 

Each credit card puts together a program based on the intended or expected card user's profile.  

Many issue startup bonuses: for example, spend $4,000 in the first three months to get 65,000 points is an introductory offer with JP Morgan Chase & Co. JPM's Sapphire card. Credit Card companies are banking on consumers holding on to the card and using it for spending moving forward.

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Are Annual Fees Ever Worth It? 

A lot of cards have an annual fee that offsets their perks. Annual fees can range anywhere from $50 to $500.

A greater annual fee typically brings higher rewards.

Credit card applicants must judge whether rewards like no foreign transaction fees, return policies, travel protection, and cashback are worth the annual fee and interest rates. 

Birch recommends that users never carry a balance on a credit card if they are trying to maximize the benefits of a rewards card.

“We recommend that you can pay your balance in full. Use it like a debit card; you will never earn more rewards than you will pay in interest. If you want to get into the rewards game, the No. 1 thing to do is pay your bill in full, set up autopay [and] use budgeting tools — but don't carry balances because you are just going to lose money on it,” Cohen said. 

Points, Miles Or Cashback? 

It all depends on what you spend on, the brands you like and how you shop, Cohen said. 

“It is good to look at points and miles as a dollar value. If each United Continental Holdings Inc UAL point is worth 1.5 cents, how does that compare to a card that gives 2-percent cashback? Birch looks at how much points and miles are worth and then we make a comparison against your spending to tell you if it makes sense to get points or cashback." 

Finding, Managing Rewards Cards 

More than 200 rewards cards are on the market, and banks are good at making their marketing sound unique and exclusive.

Wallaby, Birch and AwardWallet are some of the apps dedicated to tracking rewards-based cards.

Typically, there is no one card that will give a user all the rewards at the merchants they want. Some cards have good airline rewards, but others are better for gas and dining. 

“If you want one that has everything, it will likely have a really high annual fee,” said Cohen. 

Tips For Opening New Accounts 

Before applying for a credit card, consumers can take action to boost their credit scores to obtain the best rates and highest credit limits, Cohen said.  

• Make sure other credit cards are paid down.
• Avoid too many hard hits on your credit score. The more hard hits, the more difficult the approval, as each one lowers the credit score.  
• Holding back from applying for too many cards.
• Cohen advises not to simply apply for another credit card if faced with a denial. 

Call the bank and talk to the approvals department to find out the reason behind the "no," the Birch CEO said. 

“People don't sometimes know what's best to put on a credit card application, and they get all messed up.”

How Many Cards Is Too Many?

For most people, more than four credit cards is too much, Cohen said. 

“Three of the right card is probably the right number." 

It's best to keep accounts open, even for cards that are not used, he said. 

“You do not want to want to apply for too many cards at one time, because you want to have your credit score as clean as possible when you apply for a mortgage." 

Avoiding Annual Fees With A Cancellation 

When a credit card holder wants to cancel and dodge the annual fee, the best move is to call the company, Cohen said. 

Users can ask the credit card company to downgrade their card to one with no annual fee instead of closing the account, he said. 

“You can keep it and put it in a drawer. It’s in your best interest to not cancel cards, but to downgrade them to the no-annual-fee card and then apply for a new one."

Cards sitting in a drawer with no annual fee do not hurt utilization rates, the Birch CEO said.

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