How to Use a Credit Card & Rewards Wisely – 6 Tricks to Outsmart Credit Card Companies

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credit card manDue to the recent economic recession, people have become more and more displeased with their banks. High interest rates, credit card fees, and poor customer service have left them clamoring for change and better treatment. The recent Credit CARD Act of 2009 is a step in the right direction, but it’s not an all encompassing fix.

Luckily, there is minority of people who have found ways to outsmart their credit card issuers and make the system, flaws and all, work for them. As one of those knowledgeable few, allow me to share a few credit card tricks I’ve learned along the way.

1. Never Carry a Balance

This is the holy grail of credit card use. As long as you pay your balance on time and in full every month, you will never pay a dime in interest or fees. Better yet, you will be earning interest on the cash you held onto from the time you make your purchase, to the time your statement becomes due. That’s up to 50 days in interest gains!

Tip: Register online for instant access to current account information. Log in frequently to ensure that you are not spending more than you can afford, and to pay in full when your statement comes due. Set up an automatic payment plan to ensure that you never miss a deadline.

2. Keep a Clean Card

Let’s say that you are unable to pay your balance in full every month, but you are steadily reducing your total debt. You’d like to be able to take advantage of the perks credit cards have to offer, but you don’t want to increase your debt load.

If you only have one card to begin with, and are already in debt, you should focus on paying that card off before opening any new accounts. However, if you have more than one credit card, there is a way to continue to pay down your existing debt without incurring interest on new purchases.

The key is to keep one card “clean” by paying its balance in full every month. As stated above, when you pay a card off each billing cycle, you avoid paying any interest or fees. This is not so if you continue to charge new purchases to cards that are already carrying a balance. When you carry a balance on a card, you incur interest on all new charges to that card at the moment of purchase.

Thus, as long as you pay the balance of the “clean” card in full every month, you can use it without worrying about incurring interest on your purchases. Just make sure that you never spend more on the “clean” card than you can easily pay for in full, while paying more than the minimum on your cards that carry a balance.

Tip: Don’t make non-essential purchases while you’re still in credit card debt. If you’re not disciplined enough to limit what you spend when paying with a credit card, the best solution is to pay for everything in cash or with a debit card while you are paying off your debt.

3. Know Your Statement Closing Date

If your pay your balance in full every month, you are getting a free loan from your bank from the time of purchase to the due date for that payment cycle. Federal Law now requires that banks offer a 21 day grace period between the date your statement closes and the date your bill is due.

As a result, if you make a purchase a day before your cycle closing date, you will have 21 days to pay for it before incurring interest. Complete a transaction the day after the cycle closes, and you will have an additional month until the next cycle closes, plus another 21 days to to pay off your balance.

Tip: When you get towards the end of your cycle, it pays to hold off on major purchases. By delaying your spending just a few days, you can gain an additional month of time until your payment is due.

4. When Traveling Outside the Country, Use the Right Card

I use my Starwood Preferred Guest Card from American Express (a Money Crashers partner) all over the U.S. because the Starpoints I earn when making a purchase are very valuable to me. But, when I leave the country, that card stays tucked deep inside my wallet and I instead use my Capital One card instead.

Why? My American Express card charges a 2.7% foreign transaction fee, which negates all the value of my rewards. Capital One is one of the few cards that doesn’t charge any foreign transaction fees at all. Thankfully, consumers are learning that these fees are a ripoff and, like me, are refusing to use the cards when traveling. Due to this growing customer dissatisfaction, it looks like American Express and other companies are getting the message.

Recently, American Express announced they would drop these fees, but only on their Platinum and Centurion cards. Citigroup also announced that they would eliminate these fees on a number of their cards. Choose a fee-free card on your travels and deny your credit card company the opportunity to take your money.

Tip: When planning a trip outside the United States, contact your credit card companies and ask them what their foreign transaction fee is. It is also a good idea to inform them where and when you are traveling so they do not suspect you’re a victim of credit card fraud.

5. Get a Huge Sign-Up Bonus

Big spenders earn plenty of rewards each month, but the rest of us have to be more creative. The real credit card gurus out there have learned two simple lessons from the economic troubles of the last few years.

  1. Airlines need to unload. Troubled airlines become so desperate, they are willing to sell frequent flier miles by the millions to banks for cold hard cash, creating additional rewards for consumers.
  2. Anything to draw you in. Banks are so anxious to find new customers with good credit that they have been doling out unprecedented sign-up bonuses to attract them. For example, one bank recently offered 75,000 miles on American Airlines to sign up for a credit card.

The result has been a bonanza for card holders with good credit who can wait patiently for the best deals. Because your credit rating can suffer if you frequently open up new accounts, the experts always keep their powder dry before pulling the trigger.

Tip: Do not accept that cashier’s offer to save 10% on a smaller purchase when you open a retail store credit card. Apply sparingly, only for the credit cards with exceptional sign-up bonuses, in order to maintain your credit rating.

6. Cancel Your Card

If you want to get a new cable television or Internet service provider, you are lucky if you have one or two other companies to choose from. On the other hand, if you want to change credit cards, you have hundreds of different options available to you.

Even customers with subpar credit scores can expect their mailboxes to be full of credit card solicitations. As tempting as these can be, keep in mind that you don’t want to change credit cards like you change socks. Too much of this activity can affect your credit score and make it difficult to track your spending.

That being said, sometimes a change is necessary, whether it be for better customer service, or better rates and card perks. If your bank fails to meet your needs for any reason, you should not hesitate to end the relationship and move on.

Tip: When you shift your spending to a different card, try to keep your dormant account open until the annual fee is due. This will maximize the average length of your credit history, and in turn, improve your credit score.

Final Word

Like any other business, credit card companies are out to make money. Unfortunately, their tactics often involve creating rules that take advantage of consumers. Don’t use your cards blindly. Learn about additional fees you may incur, and pay your balance off each month to avoid interest. Take advantage of any perks you can to be sure your credit cards are acting as the valuable financial tools they should be.

What are some ways you’ve found to outsmart the credit card companies? Give your tips and tricks in the comments below.

  • Bruce

    Your tip for canceling a card by holding out until the annual fee is due to maximize your score because of age will become moot once the card is cancelled/closed. Closed accounts don’t count towards age of credit, only opened accounts. If you have one card with no annual fee that you had for years, never close the account. Stick it in your drawer or safe and keep it open.

    If you have an excellent score (760+), you will find success in negotiating with your current CC companies on limit increases, and interest rate reduction. As already mentioned, interest should not be a big factor if you don’t carry balances and you should avoid carrying any balances.

  • david M

    I HAVE excellend credit, BUT, have never had to negotiate a limit increase as they always come with balances of $15,000 -$25,000.

    Chase has started issuing cards with no “Foreign Transaction Fees” – I used the priority club card on my last trip and the rate was the bank rate plus no 3% fee – nice money saver.

    I continuously, open and after a year close accounts – mostly with Chase. I have received the United Card about 5 times, Marriot 3 times and Priority Club 2 times – always large sign-up bonuse and I have never paid an annual fee.

  • Money Beagle

    We usually keep an eye on our purchases to match the cycle. If we’re in a month where the balance is low, I might go fill the gas tanks up before the cycle closes, conversely if our balances are high, I might wait a day or two until we’re in a new cycle. This helps keep things on a pretty even keel versus lots of ups and downs.

  • Ron Darling

    Good tips Jason!

    I always put as much possible on my credit card. When buying a car, I at least put the down payment on the card.. points, baby! My most recent car (2015 camry) I put $5000 on my card and the rest in cash. My insurance is on my card ($25/month from InsurancePanda), gas is always on my card, tolls always on card, and even registration I was able to put on my card here in MA. Again… points, baby!

    I actually put my wedding on a Marriott credit card….and it was at a Marriott, so points galore. Although lesson learned, they cap out the 3/1 bonus and total points at 25k for banquets and such… unfortunately everything you spend over 8kish doesn’t get the bonus (or something along those lines…..I just remember be happy and mad at the same time).

  • scarhill

    You really should not cancel a credit card. That would likely result in a lower credit score. The reason is two fold. First, a part of person’s credit score it the age of their credit. Keeping an older card open increases the time. Second, a major part of a person’s credit score is the percentage of available credit used. Keeping the card open will increase the amount of available credit.

    It is better to keep the card open, just do not use it.