The temptation is there – when you get a new card that offers to give you twice the reward if you hurry up and use that card in the first couple of months, you might want to get out there and spend money. After all, there are things you need for your home that you’ll probably buy over the next few months, so why not do it now – while you can get 4% cash-back?
The obvious reason is that no matter when you use the card, you’ll eventually have to pay for your purchases, and if you can’t write a check to cover them when the statement arrives, you’ll have to pay interest. That alone could offset any rewards you might receive.
If your new cash-back card is a “general purpose” card that rewards you for every purchase, you might also be tempted to charge all of your monthly expenses on the card, even if you intend to pay it off at the end of the month.
That could be a good plan – but only if the credit line on that new card is large enough to let you charge your expenses without getting anywhere close to the credit limit on the card.
Remember, even if you have six cards with zero balances, charging to the maximum on any one card will drastically harm your credit scores. Even when you pay that balance each month, your credit report shows the high balance on your statement, and it can bring high credit scores down to mediocre scores.
If you have no plans to purchase a car or a house in the next couple of years, you might not care. But if you do anticipate a major credit purchase, you’ll save more money by maintaining a high credit score than you could ever get back in a credit card reward.
Just ¼% more in interest on a $250,000 home would add about $52 per month to your house payment. And not just for a month – for the life of the loan.
Something else to remember about cash-back and rewards credit cards – you need to redeem them just as often as you’re allowed. The card issuer could change the terms under which they pay their rewards, and if you fail to use your card for an extended period of time, you might see them disappear.