There is no universally best credit card. The right card for you depends on your lifestyle, goals, and credit rating. For example, if you’re looking for travel rewards but your friend is building a bankroll, the best card for each of you will be very different.
And while there might not be one card that’s best for you — the average American has about three cards, according to a 2021 Experian study — a card can often be wrong for a given situation.
Here are eight times you might be using the wrong credit card, and what to do instead.
1. You’re still using your starter credit card
You may have started building your balance with a secured card, student ID, or alternative card, but once your balance is in better shape, it might be time to upgrade.
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If you’ve used a starter card responsibly, by keeping your usage rate low and paying off balances in full each month, you may qualify for a card that’s a better fit now. A different card might offer a higher credit limit, better rewards, and perks like cell phone protection and travel benefits. Some card issuers may automatically update your card once you reach certain thresholds, while others may not. Contact the issuer to review your options.
2. You do not use a card enough to earn the sign-up bonus
New cardholders can often earn a lucrative welcome bonus, but usually with one caveat: you have to spend a minimum amount within a certain period of time to claim it. Note the spending requirements for a card’s sign-up bonus and use the new credit card sufficiently by the deadline. If you keep paying with an older credit card that’s already in your wallet, you risk missing out on the bonus if you don’t spend enough on your new card.
A little planning can help. Think of upcoming big purchases you need to make such as: B. a car repair or a new laptop. Just one of these might be enough to meet the bonus spending requirements.
3. You use a business-specific card
It is true that using a credit card can save you money in the store, especially if you are a frequent spender at that store. However, the rewards earned with a business credit card can often only be redeemed at that business, limiting their usefulness.
Most buyers would be better off using a general rewards credit card and earning more flexible rewards. Some cards have boosted rates for online purchases, while others get up to 5% back at popular retailers like Target, Walmart, and Amazon.
4. You didn’t realize that 5% cards require extra work
Several cards offer a top 5% cashback rate in popular spending categories like grocery stores, restaurants, and gas stations. The catch, however, is that you have to do some work to earn that rate. In most cases, you’ll need to track categories: Qualifying 5% Purchases may rotate quarterly, or you may need to select your own categories. If you spend outside of these categories with this card, you’re likely only earning 1% instead of the whopping 5% you think you deserve.
In most cases, you must activate the bonus categories before the issuer’s deadline to earn the 5%, even if you spend in the correct category. Also, you’ll likely run into spending caps in those 5% bonus tiers; Once you reach these caps, the bonus rate drops to 1%. For those who find a 5% card high-maintenance, opt for one that earns a flat 2% cashback on every purchase instead.
5. You mix up the card names
According to a 2020 NerdWallet study, 14% of Americans consider credit cards “complicated,” and it’s not hard to see why. Some exhibitors offer card sequences from the same family and have almost identical names. The logos of some issuers are also strikingly similar. Do a quick check of your credit cards to make sure they’re the cards you want to receive. Cards that look and sound almost the same can be worlds apart in terms of fees and reward structure.
6. You regularly use a balance transfer card for purchases
Balance transfer cards can be excellent tools for paying off debt. They consolidate multiple debts into one place, making them easier to keep up with, and they can give you a breather of interest for many months. However, if you also use a balance transfer card for everyday expenses, it will be difficult to reduce that balance to $0. Also, many balance transfer cards do not come with rewards. Leave the transfer card at home, but take the cash back card with you – and deposit both regularly.
7. You are using the wrong card for this purchase
It pays to know the premium rates for all of your credit cards. Let’s say you have two credit cards, one that earns 4% on gas and another that only earns 1%. Using the 4% card when filling up would return $30 more if you spent $1,000 a year on gas. That $30 doesn’t seem like a lot, but small amounts add up, especially if you have multiple reward credit cards. To keep track of the different bonus rates, you can write sticky notes on your cards or keep a small reference book in your wallet.
Often you also need to keep an eye on spending caps. Issuers typically cap earnings at their highest premium rates after you reach a certain amount of spending in a given category. Make sure you’re tracking your progress towards that cap and switch to another map with a better rate when you hit it – until the limit resets.
8. They don’t use a credit card at all
Although they look and feel virtually the same, a debit card is very different from a credit card. Credit cards offer protections and benefits that debit cards (and cash) don’t. Credit cards allow you to earn cashback and other rewards that you can’t earn with debit cards, and it’s often easier to recover from losing a credit card than from a wallet full of cash. More importantly, using credit cards responsibly builds your credit score, which can translate into better credit terms and insurance rates, among other money-saving benefits.