Every time you use your credit/debit card for a transaction, the card company earns an 'interchange' fee from the merchant outlet. It can vary from 1% to 2.5%. The outlet can negotiate a lower fee if its volumes are high.
Apart from the 'interchange' fee, the card company makes money from the annual fee it charges from card holders and interest earned on rolling over unpaid bills. They share a part of earnings (mostly from interchange fee) with the card holder in the form of reward points to encourage him/her to use it more frequently.
While you’re working hard to rack up those credit card points or airline miles and watching your rewards balance grow, there’s another number to keep in mind: when your points expire. Seeing your rewards vanish isn’t exactly fun, so it’s important to know the expiration dates and take steps to keep your points alive.
Maximize reward points Without Ruining Your Credit Score:
1. Pay your balance in full each month.
The fact of the matter is that credit-card companies don’t care how many cards you have as long as you’re a responsible spender.
This is reflected in the way your credit score is calculated. Only 10 percent of your overall credit score is affected by new credit-card inquiries. In other words, when you apply for a new card, you’re only going to see a small drop of a few points.
2. Keep your spending habits the same.
Getting a new credit card can actually help your credit score.
There is a component of your credit score called the credit utilization ratio. This ratio refers to the percentage of your credit limit that you typically spend. For example, if your credit limit is $10,000 and you spend $4,000 per month, then your credit utilization ratio is 40 percent.
If you keep your spending habits relatively similar when you get a new credit card, then this ratio should drop. For example, a new card might boost your overall credit limit to $15,000 and if you’re still spending $4,000 then your ratio would drop to 26 percent. This drop is a good thing, because it indicates that you can handle higher credit limits and still be a responsible spender.
3. Stack your inquiries on the same day.
If you’d like to try to earn hundreds of thousands (or even millions) of frequent-flyer miles, then it’s best to stack all of your applications on the same day.
As mentioned in steps one and two above, you may see a small dip in your credit score early on, but if you spend responsibly over the next few months, then you’ll likely see an increase in your credit score as time goes on.
In the long-term this means that your score will be back to normal by the time you apply for a new set of cards in a few months and repeat the process to get even more miles and points.
4. Make sure you can meet minimum spending limits and plan accordingly.
The system for maximizing credit-card points is pretty simple.
Get a new card, spend the minimum amount necessary to get the frequent flyer miles, and then stop using the card or cancel it a few months later. Then, you move on to the next card and repeat the process.
The one caveat is that you need to hit the spending limits for each card to maximize your points. For example, you might be awarded an additional 20,000 points after reaching the minimum spending limit.
Apart from the 'interchange' fee, the card company makes money from the annual fee it charges from card holders and interest earned on rolling over unpaid bills. They share a part of earnings (mostly from interchange fee) with the card holder in the form of reward points to encourage him/her to use it more frequently.
While you’re working hard to rack up those credit card points or airline miles and watching your rewards balance grow, there’s another number to keep in mind: when your points expire. Seeing your rewards vanish isn’t exactly fun, so it’s important to know the expiration dates and take steps to keep your points alive.
Maximize reward points Without Ruining Your Credit Score:
1. Pay your balance in full each month.
The fact of the matter is that credit-card companies don’t care how many cards you have as long as you’re a responsible spender.
This is reflected in the way your credit score is calculated. Only 10 percent of your overall credit score is affected by new credit-card inquiries. In other words, when you apply for a new card, you’re only going to see a small drop of a few points.
2. Keep your spending habits the same.
Getting a new credit card can actually help your credit score.
There is a component of your credit score called the credit utilization ratio. This ratio refers to the percentage of your credit limit that you typically spend. For example, if your credit limit is $10,000 and you spend $4,000 per month, then your credit utilization ratio is 40 percent.
If you keep your spending habits relatively similar when you get a new credit card, then this ratio should drop. For example, a new card might boost your overall credit limit to $15,000 and if you’re still spending $4,000 then your ratio would drop to 26 percent. This drop is a good thing, because it indicates that you can handle higher credit limits and still be a responsible spender.
3. Stack your inquiries on the same day.
If you’d like to try to earn hundreds of thousands (or even millions) of frequent-flyer miles, then it’s best to stack all of your applications on the same day.
As mentioned in steps one and two above, you may see a small dip in your credit score early on, but if you spend responsibly over the next few months, then you’ll likely see an increase in your credit score as time goes on.
In the long-term this means that your score will be back to normal by the time you apply for a new set of cards in a few months and repeat the process to get even more miles and points.
4. Make sure you can meet minimum spending limits and plan accordingly.
The system for maximizing credit-card points is pretty simple.
Get a new card, spend the minimum amount necessary to get the frequent flyer miles, and then stop using the card or cancel it a few months later. Then, you move on to the next card and repeat the process.
The one caveat is that you need to hit the spending limits for each card to maximize your points. For example, you might be awarded an additional 20,000 points after reaching the minimum spending limit.