Do or Don’t: Opening a credit card just for the rewards points?

by Kristina on January 24, 2013 · 8 comments

This is a post that I originally wrote for the Smart Money Debate at Ready for Zero.  I want to know if Dinks are pro or con opening a new credit card just to take advantage of rewards bonus points.  Can you guess where I stand on the subject? If you would open a credit card just to take advantage of the bonus rewards points we want to know why.

Come on Dinks, tell us about your credit cards!

In the past I opened credit cards for any number of reasons that included everything from gaining bonus rewards points and cash back to opening a new credit card just because it was offered to me.

Many banks are currently offering 0% interest balance transfers and one time sign up bonus rewards points to try and entice consumers to sign up for their newest credit card.  But before you sign that credit card application and get your bonus rewards points you have to ask yourself – do I really need another credit card?

Most likely the answer is no. Unless you are a teenager and you are applying for your first credit card you most likely do not need another credit card in your wallet.  Credit cards (more than one) do not help your credit score or your net worth, actually credit cards harm your credit score and your net worth more than they help them.  Many people feel that if they have a lot of credit cards with high limits it makes them more financially worthy but this is just not true.

Don’t be tempted to use your credit card for the rewards

Credit cards are not always bad because if you use them responsibly by spending within your limits and always paying off the balance each month they can be very rewarding.  However credit cards can also be a source of temptation that can lead to over spending and unnecessary debt accumulation.

Before you charge a purchase on your credit card just to get rewards points you have to ask yourself – would I still make this purchase if the rewards points were not an added perk? Once again the answer is probably no.  If you have one credit card you should use it only when needed.  Don’t overspend and make unnecessary purchases on your credit cards just to get bonus rewards points; you should consider the rewards points to be an added bonus and not the reason why you are making the purchase.

Make sure the credit card rewards are worth the cost

Credit cards rewards points can definitely be a temptation to spend and a reason why people sign up and apply for credit cards, but you have to remember that rewards points are usually a onetime bonus. Credit cards that offer rewards points usually come with an annual credit card fee.  If you are going to pay an annual fee for a credit card that offers rewards points you have to make sure that the annual fee is worth the rewards benefit.

What is your favourite rewards credit card?

Photo by stormkatt

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{ 6 comments… read them below or add one }

1 Michelle January 24, 2013 at 8:21 am

Right now we are trying to build up our credit to be as high as it can possibly be so that we can get a great rate on a new house next year. After that though, I definitely plan on churning some rewards cards :)

2 Peaches & Whiskey January 24, 2013 at 9:35 am

We opened a Joint Credit Card when we got engaged to pay for wedding expenses and the honeymoon. Amex offered 12 months with no interest and up to 5% cash back on certain household expenses.

The 12 months 0% interest has long passed, but we still use the credit card to accumulate cash back. However, we ALWAYS pay the card off every month. The cash back is just a bonus!

3 Julie @ Freedom 48 January 24, 2013 at 6:34 pm

We recently opened a Capital One Aspire Travel credit card just for the rewards… and were happy to pay the $120 yearly fee! We only have one credit card, that we put EVERYTHING on. Our old Air Miles Mastercard was good (although we earned MAYBE $150 in rewards each year). Then Air Miles changed their program, and now the miles are practically worthless. If we spend the same amount on our Capital One Mastercard… we’ll earn in excess of $600 each year in rewards – and the rewards can be applied to “erase” ANY travel related purchase put on the card (i.e. flight, hotel, car rental, vacation package etc). Even though we’re paying $120 per year to have the card, the rewards make it well worth it. That being said, we’re very responsible with our credit card and pay it off in full each and every month.

4 January 24, 2013 at 8:27 pm

Just as a note Michelle, be careful not to open too many credit cards or any too soon close to your home purchase. I am a retired life insurance agent and broker, and I’ve learned a few things from the underwriting departments at insurance companies using credit scores as a factor for calculating rates. One thing is that having a lot of unused credit is not a good thing either. Additionally, having too many inquiries into your credit history in a 12 month period is no good either, so get the credit cards you need, and then stop and build credit on them.

5 Jeff January 24, 2013 at 8:54 pm

I’m just a personal finance geek, but I think that one of your premises is faulty. I agree that credit cards are very dangerous tools, just like any credit/leverage. I disagree with you in that 1 credit card is enough to build enough of a credit report/score for most people’s needs. I believe that 2-3 aged credit accounts are necessary to build enough history to get favourable rates on a mortgage

Also, it’s worth mentioning that a second card from a different issuing bank is useful to have incase your card is compromised so you’re not left for a week without any credit card while a new card is being mailed out to you.

But yes, in my early 20s on a vacation with my now wife, I did suggest she shop because I wanted to hit a credit card bonus threshold.

6 James January 24, 2013 at 10:00 pm

Thats a big NO. Its not worth giving yourself the opportunity to pay 20% interest to the bank just for some measly reward points.

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