Whether you’re signing up for your first rewards credit card or simply making a new addition to your wallet, a new credit card gives you a fresh start and the opportunity to learn or refine good credit habits that will serve you well on your credit journey.
Here are six habits to cultivate to get value from your card while steering clear of common pitfalls.
- Decide how you’ll earn the sign-up bonus
- Create a budget
- Optimize rewards categories
- Track your card usage
- Set up payments
- Explore redemption options
Table of Contents
1. Decide how you’ll earn the sign-up bonus
You typically have a period of a few months after opening a card to meet the spending requirement for the sign-up bonus, so if you hope to snag this reward, you should start planning right away. If you’ve been meaning to take a trip or buy something special, the sign-up bonus window on a new card could be just the right time.
Another approach is to look for expenses coming up in the future and see if you can get them out of the way now. You could try to get a head start on seasonal expenses, for instance, like holiday decorations or gifts.
Alternatively, figure out how much you’d need to spend per month to earn the bonus, and try to charge at least that much of your regular monthly expenses to the card. For example, The Platinum Card® from American Express is currently offering 100,000 bonus points when you spend $6,000 within the first six months after opening the account. That means you can reach the bonus if you spend at least $1,000 in each month of the bonus period. For the first six months, use your new card for groceries, swap your utilities over for the month or pay for date night.
It’s never a good idea to buy stuff just to earn a bonus, as the reward likely won’t be worth the interest you’ll rack up or the hit to your credit if you take on debt you can’t afford. So you should keep an eye on your balance during the bonus period and be careful to avoid overspending.
2. Create a budget
Having a budget is necessary for everyone, but it’s crucial when using a new credit card. With your budget as a guide, you can feel confident that you’re spending money on things that matter to you rather than making impulse purchases to get rewards.
Your budget should include your income, how much you’re saving, debt payments and how much you expect to spend. Think about whether you want to put that expense on your new card or use a different payment method for each spending category, like food or entertainment.
When you get your first statement, compare it to what you planned to spend, and update your budget if necessary. It’s wise to develop the habit of checking your statement against your budget so that you review the latter regularly.
3. Optimize rewards categories
If your new card offers bonus points on rotating categories, you should activate the categories as soon as possible. You’ll also want to check out the rewards calendar so you can plan ahead. You may want to buy supplies for a remodel during a quarter when purchases at home improvement stores earn extra cash back, for instance.
Remember to compare your new card with any other cards you have to see which offers the best rewards tier on different areas of spending. Suppose you’ve just opened the Blue Cash Preferred® Card from American Express, which gives 6 percent cash back rewards on the first $6,000 you spend at U.S. supermarkets in a calendar year (then 1 percent). If you’ve been paying for groceries with the Wells Fargo Active Cash℠ Card, which offers unlimited 2 percent cash rewards on purchases across the board, you will earn higher rewards on groceries if you exclusively pay with your new card when shopping in this category up to the cap.
4. Track your card usage
Plan to view your card activity at least once a week. You can do this by logging into the account or by opting to receive a weekly email summary if your credit card company offers this service. If you prefer to use a separate app to manage your money, connect your new card to the app so your transactions will show up there.
Tracking your card usage is a good habit to build early on because it allows you to verify that you’re staying within your budget, confirm that payments post to your account and identify fraudulent charges quickly.
Consider setting up alerts for large transactions and for when your balance approaches your credit limit. That way, you can avoid accidentally maxing out the card.
5. Set up payments
If there are ongoing expenses you want to pay with the card, such as your cell phone bill, utilities, insurance, gym memberships or subscriptions, consider setting up automatic bill payments. This calls for an upfront investment in your time, as you’ll need to go to your online accounts or call each of the companies you want to pay, provide the details for your new card and authorize recurring payments. But once it’s done, you won’t have to remember to pay each of these bills every month, and you’ll accumulate rewards on your payments.
It’s also a good idea to arrange automatic payments for your credit card bill. You’ll need to give your routing and account numbers to link a bank account and choose a day of the billing cycle when you’d like your payment to go through. You’ll then decide if you want to pay your entire balance or a portion of it.
6. Explore redemption options
Go to the rewards portal for your card to learn more about the redemption possibilities. If your card offers cash back, you may be able to choose from a statement credit, direct deposit or a check. If you’re earning travel miles, the portal will tell you how to redeem those miles for airfare, hotel stays or other benefits. And if you’re earning points, you may be able to choose from gift cards, merchandise, digital media or charitable donations.
If there’s a specific reward you want, make a note of how many miles or points you’ll need to achieve it. You can then estimate how long it will take you to earn the reward and keep tabs on your progress. You can also use a travel rewards app, like the recently announced The Points Guy app, to keep track automatically.
The bottom line
Opening a rewards credit card is an opportunity to continue growing your credit while earning valuable points or other goodies. If you begin developing sound habits as soon as you activate the card, you’ll be well prepared to enjoy all the perks your new card offers.
