Friday, March 14, 2014

10 commandments of credit card rewards

1. Thou shall not utilize reward credit cards if one regularly carries a credit card balance.

Don't even think about signing up for a bunch of shiny new reward credit cards if you carry a significant credit card balance on a regular basis.  You'll be tempted to charge even more.  Work on reducing your credit card debt first - you'll pay less interest from now on as a result and that in itself is generally a much greater reward than the best sign-in offers you can find.

Theoretically, you can collect rewards and pay back debt at the same time but it'll require immense discipline.  One bad move or late payment and you'll be in further debt than before.  I don't recommend this route as it can be difficult for many to pull off successfully.  OK, it may not be as hard as daytrading, but at least daytrading offers a more favorable risk to reward profile.  In any case, focus on paying off your CC debt first THEN focus on collecting points to keep your sanity in check.

2. Thou shall use credit responsibly.

The reward cards you accumulate will not only provide you benefits based on your spending but also provide a line of credit in case a real emergency strikes and you need to pony up fast (i.e. major home/car repair, hospitalization, family emergency, etc.)  However, never charge anything you cannot afford to pay cash for (unless you lost your job and need to put food on the table or one of the aforementioned emergency situations came up.)  As tempting as it may be, it's easier to not get into CC debt than to get out of the debt!

I recommend a credit score of at least 720 and little/no revolving CC debt before proceeding.  Try to open 2-3 cards in a single day if possible so the hit to your credit score is minimal, but don't apply to too many on a single day either or you won't be able to meet the minimum spend offers on all of them (more on that later.)

3. Thou shall stay organized.

There are countless credit card offers with great sign-in bonuses out there.  When you have more than 2 or 3 cards, it's easy to lose track and possibly miss a payment.  Even if you're super organized and have a great credit score, it's bound to happen, even to the best of us.  Late fees will ensue as a result.  The longer you wait to pay the late fee and the balance, the more your credit score will drop.  Don't stress yourself out if you miss a payment once in a while but do set up your infrastructure to be super organized so late fees will happen only once in a blue moon.  Some tips in this regard:

  • Register your credit card accounts on
  • Always sign up for email reminders for payment due dates.
  • Use a spreadsheet to track sign-in bonuses and when the cards will start charging an annual fee.
  • Check your spreadsheet and your credit card accounts every 2 weeks to make sure they're all paid.
  • If you miss a payment, you can try Ramit Sethi's script here to try to get it waived.  Don't let your guard down and think you can rely on this; some credit card issuers might offer to waive the late fee the first 1 or 2 times you miss a payment as a courtesy but don't count on having this life line being there 100% of the time!
4. Thou shall monitor one's credit score regularly.

Some cards, notably Discover and the Barclays Arrival cards, offer periodic updates on your FAKO Credit Score (an educated estimate.)  While this isn't the score lenders use to evaluate your eligibility for credit, it should give you a heads up if something fishy is going on.  At the same time, pull up your credit scores every 6-12 months from one of the 3 Credit Bureaus..  you can triangulate an estimate of your score based on your official report from several months ago and your current FAKO score.

5. Thou shall not significantly increase one's spending to collect more rewards.

So why are you going through all this trouble to get frequent flyer miles and reward points?  To get free stuff, obviously!  If you're spending more money than necessary to get points for that flight to Paris, aren't you better off just buying that ticket directly like most people?

6. Thou shall prioritize towards fulfilling the sign-in bonuses (aka "minimum spend") on reward cards first.

Many cards offer, say, 30000 points for spending $3000 or so in the first 3 months and 1 point per $1 normally.  You will gain 33000 points by spending $3000 in the first 3 months, the equivalent of 11 points per $1 spent.  If you spend $20000 a year, you could potentially earn 200K points by selecting the right cards for their sign in bonuses, more than enough for 2 (maybe 3-4) round trip tickets to Europe or Asia.  You now have free plane tickets for an overseas trip for the whole family!  More on how to do this later..

7. Thou shall pay attention to the terms of offers.

When does the "minimum spend" period begin?  When does it end?  It can be the day you apply, the day the card is approved, or the day you activate the card.  Not sure?  Contact the issuer!

When do you reward points or frequent flyer miles expire?  After a set period of time (usually 12-18 months)?  Never?  Make sure before you're faced with surprises.

Also, some sign-in offers, notably for the Starwood Prefered card, are not available if you've already redeemed another sign-in bonus.

8. Thou shall pace one's credit card sign-ups so that sign-in bonuses can all be fulfilled within their deadlines.

This is common sense but don't take on more sign in offers at a time than what you can handle.  You may be stuck with a dilemma of not fulfilling sign in bonuses and wasting all that effort or overspending and violating rule 5.

9. Thou shall look into ways to collect rewards for bills that cannot be (directly) paid using credit cards.

Amazon Payments allows you to send up to $1000 to anyone with an Amazon Payments account by charging it to a credit card and collecting the points.  Make sure you specify the payment is for good and services or you will be charged for a cash advance.  I generally like to use Amazon Payments to reimburse friends; it can also be a great way to pay your roommates if you split the rent but write one check each month.

Vanilla Reload cards can be purchased at your local CVS and sometimes can be loaded with credit cards, thus earning points.  They cost $3.95 to load up to $500.  Redeem the Vanilla Reload cards into an AMEX Bluebird account.  Order checks from Bluebird and write them to pay folks who don't take credit cards: rent, mortgage, college tuition, etc.  In this way, you can indirectly earn points for paying your rent, a major big ticket expense!

4/4/2014 Update: Vanilla Reload Cards can no longer be purchased using Credit Cards.  However, other alternatives to loading your Bluebird account exist.

More on this later..

10. Thou shall not engage in Manufactured Spending or create a closed loop (at least not on a large scale.)

Manufactured spending is when you spend using credit cards and essentially pay yourself with those points.  It can be done using Vanilla Reload cards and writing a check to yourself, a credit card you owe money for, or a friend or family member who gives you the money back (aka a closed loop.)  In theory you can earn unlimited points this way, but in practice, credit card issuers will shut you down long before you accumulate 1 million points this way.  Your account will be flagged for suspicious activity and possibly be suspended.  In the worst case, your account will be closed and you'll lose all the points you worked so hard for.  Please don't abuse the system this way.

I'll admit, I do strategically engage in Manufactured Spending on a smaller scale when I shop at Target.  Target's Redcard offers a 5% discount on all purchases at their stores, but I won't receive that award if I use another card that I need to meet the minimum spend on.  Suppose I get 11 points per $1 with the minimum spend factored in, and I spent $100 on merchandise at Target.  I can walk away by getting 5% off AND fulfilling some of the minimum spend on my other card this way:

Step 1, Use credit card with minimum spend to load a Vanilla Reload card as in #9 and that money goes to a Bluebird account.
Step 2, At Target, swipe the Redcard and get 5% off.
Step 3, Use the money in your Bluebird account that you filled with the credit card to pay off the Redcard.

As a rule of thumb, a few hundred dollars in Manufactured Spending a month is generally fine, so strategically use it to maximize your rewards.  $1000 a month is pushing it..  $10,000 a month and you'll alert the issuer (unless your income is very high.)


Many thanks to Chris Guillebeau for introducing me to maximizing credit card rewards.  You can check out his site to find actual reward cards after reading the 10 commandments above.  Enjoy your credit card rewards responsibly!

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