Optimizing Credit Cards

I’ve written before about why you need to use credit cards as a young adult. To recap what I’ve written before, the main point is that if you use credit cards to pay for expenses that you would have otherwise paid for, you can earn money from rewards.

While many debate the topic of credit cards, it really is pretty simple: if you can control your spending, use a credit card and get some cash back (or trips, gift carts, etc.). My life is a great example of someone who has become increasingly aware of the benefits of rewards cards and I share it with all of you to shorten the learning curve for all of you. Learn from my mistakes and start using credit cards the right way.

My History Using Credit Cards

My wife and I have been married for over four years now. That means between four years of college and four years of marriage, I’ve been using credit cards for almost nine years. When I put it that way, I still can’t believe how long it’s been. Time really does fly by.

First Credit Card

When I was preparing to leave for college, I applied for my first credit card. I was 18 and knew that owning and using a credit card would build up my credit. (I love being the youngest child and learning from my big brothers) Unfortunately, I applied for a card that is one of the most difficult cards to get approved for. I was initial disappointed, but that didn’t stop me.

I applied for the next card through my local bank, whom I had been a member since I was four years old (Thanks Mom and Dad). I was, of course, approved and started using my credit card for regular expenses. I still suggest this to many of my younger friends, but in hindsight, I wasn’t thinking about the rewards.

Because I was paying for everything with one card, without doing research from one of the many websites (i.e. Totally Money) that offer valuable comparisons, I was not maximizing my rewards. While I was thinking about credit, I ignored rewards and left money on the table.

College Years & Immediately After Graduation

For the next few years in my life, I changed my use of credit cards a little bit, but overall continued my bad habit. To be clear, I was paying off my credit card each month, so I was doing many things right. I was just missing out on focusing on rewards. I finally got approved for a second credit card and was using both on regular expenses so that I could build up my credit history with multiple cards. What I failed to do was evaluate which card I should use for which expense.

Past Three Years

Using two cards continued for several years, until about a year after college – until I realized that I was leaving money on the table by not focusing on which card to use for specific expenses. Here’s a great example: I had one primary card that I would use for most of my expenses and then would use a second one for a few transactions. However, the first card had a low-rate in cash back rewards while the second one had a rotating list of reward categories at 5%.

What I started to do, and still do to this day, was use the card with rotating 5% rewards on the categories and then use the lower, flat-rate rewards on all of the other expenses. I also got an American Express card that I can use at Costco to get an additional percentage back while shopping there (since they don’t accept other credit cards).

How to Use Your Cards Strategically

If you want to earn more money, here’s a step-by-step guide to optimize your credit card usage:

  1. Research the rewards programs for all of your current cards
  2. Determine whether or not you need to apply for a new rewards credit card
  3. Plan out which card will give you the highest rate of return for each normal expense that you incur
  4. Carry out your plan (don’t just use the most convenient card in your wallet)
  5. Re-evaluate your plan every 2-3 months

Benefits of Optimizing Your Credit Card Usage

Like any other thing in personal finance, your process will continue to change over time when it comes to using your credit cards – as it has with mine. But, that is not to excuse you for delaying making changes to how you use your credit cards. By using and optimizing your credit cards, you accomplish one simple thing: more money.

The best thing about thinking strategically about which card to use and when is not just that you get more money back, but that it doesn’t cost you a single thing except maybe a few seconds before you swipe your card at the store.

5 Responses to Optimizing Credit Cards

  1. CF says:

    I’ve considered getting another credit card for cash back rewards in order to optimize a bit more but just haven’t gotten around to it. :p

  2. Credit cards are a great tool if you know how to use them right and you can earn a ton of money with rewards, especially with sign up bonuses. The key, is to first learn how to use the cards and to never carry a balance, pay a penny in interest or any other type of fee.

    I personally optimize my credit card usage through sign up bonuses and then keeping the best cards for the key categories I spend in.

  3. Micro says:

    I’m still working through some credit card churning so focusing on maximizing the cash back rewards isn’t a high priority right now. I need to have all the money dedicated to the new card to quickly hit the spending threshold so I can move on to the next card. Once I stop churning through them, I will likely look to utilize the cream of the crop to maximize my cash back rewards.

  4. Utilizing credit cards strategically and responsibly is an important step to building credit which will help not only if you want to buy a home but with utility bills, phone bills and background checks for jobs.

  5. Search for exactly the credit card that you’re interested in, or compare new credit card offers by browsing reward types, no annual fee credit cards, or low interest rate cards. There are also easy categories for student credit cards, business credit cards, offers from credit unions, and a selection of network choices including Discover and American Express.

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