Experts Tend to Disagree about Credit Card Use
There are a lot of different credit card rewards programs out there these days. The majority of people use their credit cards without having any problems. Some experts warn, however, that messing around with credit card rewards programs can be a bit hazardous. With the average American consumer carrying around about $15,000 in credit card debt, it is understandable why some experts are concerned about how people utilize their cards. There are some financial experts that tell people to avoid using credit cards like the plague, while others seem to think that the perks of rewards programs are too good to overlook. Before you decide on which side you choose to believe, be sure to keep reading to learn more about the pros and cons of using credit card rewards programs.
All about Credit Card Rewards Programs
If you are not familiar with these types of programs, they are all about getting you to sign up for a credit card by offering you some nice incentives. The credit card issuer might offer you points that can be redeemed for gift cards, travel perks, cash or other cool stuff. People who really enjoy the perks of rewards programs tend to take care of their day-to-day expenses with cards. They’ll pay for gas, groceries and even their bills with their cards in order to earn more rewards points. The experts who tell people to get as many points as possible say that if people are smart about paying their balances off every month that they can avoid the potential pitfalls that other experts warn people about.
The rewards may be blinding some people to the fact that every time a cred gets used, a person’s credit score takes a tiny hit. Remember, the credit bureaus look at how much of a balance you carry on your cards when they are tabulating your score. At any given time, especially if someone almost maxes out their card in order to get more rewards points, these little dings can really add up. Where this really gets dangerous is when someone does this, pays their card balance off and then immediately closes the account. These actions can act as a 1-2-3 punch that will really damage your credit rating.
A better approach to using rewards programs, according to some financial experts, is to make sure that you leave the card open and that you do not use the card once you have earned whatever the sign-up bonus is. If you have to pay a fee on the card, be sure that you don’t close the card until the fee is due. Or you could try talking to a company representative and ask to be downgraded to a card without any fees.
Remember, that a big part of your credit score is related to credit utilization. If you pay your card balances off each month, you should be in good shape where this credit score metric is concerned. And by paying off the total balance on your credit cards each month, you avoid having to pay excessive APR charges.
So, should you spend your time chasing after new rewards programs when opening a credit card? Like anything else in life, it seems that moderation is key. There is nothing wrong with opening a card, or using it regularly to earn points. However, if you get to the point where you are always charging like crazy, and not paying off your balances regularly, you are probably better off avoiding opening any new credit cards; no matter how much of a great deal a rewards program might appear to be.