While most Americans have one or more credit cards, very few spend much time thinking about them. Instead, we tend to enjoy the simplicity and convenience of our cards, while often failing to use them to our best advantage.
Here are five ways you may be using your credit cards wrong, and some tips on how to use them better.
1. Carrying a Balance
If you’re carrying a balance on one or more of your credit cards, you’re incurring costly interest charges on every purchase you make, starting on the day of each transaction. However, if you can get into the habit of clearing your balance every month, then you will enjoy an interest-free grace period.
Credit card issuers calculate interest charges based on your average daily balance, but they will waive all interest charges when you pay your entire statement balance in full every month. As a result, you can make a purchase at the beginning of your 30-day billing period, and then pay for it at the end of a 25-day grace period (the time between when the statement period ends and the payment due date), and get up to 55 days of interest-free financing.
2. Not Carrying a Balance, But Not Earning Rewards Either
About 30% of U.S. card accounts don’t incur interest charges because the cardholders pay their credit card balances in full every month. That’s great, but too many of these cardholders aren’t earning any rewards. When you pay your full statement balance each month, you can choose a card that offers the most valuable rewards, without worrying about its interest rate. (See also: Best Credit Cards for Everyday Purchases)
And since you won’t have any credit card debt, you may have a very strong credit score. An excellent credit score qualifies you for the best cards that offer rewards programs and high sign-up bonuses.
3. Not Redeeming Your Credit Card Rewards
It’s not enough to just earn credit card rewards, you need to redeem them. According to the 2015 J.D. Power credit card satisfaction survey, only 53% of reward card holders had redeemed rewards in the previous six months. There may be good reasons to hold onto rewards — if you’re saving up airline points for a big trip, for example. But airline rewards programs are changing constantly, and the devaluation of frequent flyer miles is always a risk. Even worse, the rewards may expire or you may forget about them before the account is closed.
People often don’t use rewards because the reward program is too complicated or they’ve chosen the wrong kind of reward card. While travel reward cards often sound alluring and a free international trip usually provides the highest rewards redemption value, the truth is, if you don’t travel more than a couple of times a year or you’re not interested in an overseas trip, they’re probably not your best option.
Cash-back cards offer a slightly lower payout but they’re simpler, so most people are more likely to use the rewards. (See also: Cash Back vs Travel Rewards: Pick the Right Credit Card for You)
4. Having Just One Credit Card
As long as you can handle credit responsibly, you’re better off having more than one credit card. Some cards are better than others for certain purposes. You might have one credit card that offers valuable benefits when you travel, and another card that earns the most rewards for everyday purchases at home, such as groceries or gas.
Having multiple credit cards improves your overall credit utilization ratio, helping your credit score. It’s also important to have a backup in case one of your cards is ever lost, stolen, or hacked.
5. Not Using Your Cardholder Benefits
When you first received your credit card, it included pages of fine print that you probably threw away. Buried in that pile was something called the guide to benefits that lists all sorts of ways that you can use your card to save money. (See also: Awesome Credit Card Perks You Didn’t Know About)
One of the best known credit card benefits is rental car insurance, which saves you from having to buy the expensive policies pushed by the car rental companies. Lesser known perks include extended warranty coverage, damage and theft protection, and even a price match policy. And when you are traveling, your credit card could come in handy with travel accident insurance, trip delay and trip interruption coverage, a lost baggage benefit, and trip cancellation insurance. (See also: Travel Perks You Didn’t Know Your Credit Card Has)