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By turnercowles
June 13, 2014

Playing for rewards can be fun and profitable—but you’ve got to beware of traps that can wipe out your winnings. Follow these guidelines:

DO: pay your bill in full each month. A balance is the nemesis of a rewards strategy, since interest (usually 13% to 22% on this type of card) can eliminate the benefits, says Beverly Harzog, author of Confessions of a Credit Junkie. To avoid finance charges, some wizards budget to the penny; others pay off their cards weekly or after any big purchase.

DO: stay on top of due dates. Late fees—$34 on average, per CardHub.com—add up fast and may amount to more than what you’ll get back from the card.

DO: track annual fees. For some cards (like the American Express Blue Cash Preferred) it can make sense to pay a fee ($75), since the earn rate (6% on groceries) is so lucrative. But for cards you’re simply getting for the sign-up bonus, cancel your membership before the fee—usually waived in the first year­­—comes due.


 

DON’T: spread out your applications. Planning to get new cards to follow the strategies here? Complete all your applications within a two-day window, since that way only one inquiry will be recorded on your credit reports. If you instead apply over a few months, your report will show multiple inquiries, which can damage your credit score.

DON’T: use too much credit. The wizards charge everything. If you’re going to follow their lead, keep in mind that 30% of your credit score is determined by how much of your credit limit you spend. Experts recommend using less than 20% to 30%. One benefit of signing up for multiple cards is that by combining them you have a higher overall credit limit.

Advertiser Disclosure

Money has partnered with CardRatings.com and ConsumersAdvocate.org, among other companies, for our coverage of credit card products. Money, CardRatings.com, and ConsumersAdvocate.org may receive a commission from card issuers. For example, Money receives a commission from Citi when you apply and are approved for a Citi product through the links on this site.

Opinions expressed here are the author's alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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