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Columns | Go Far With Kovar

Should I open a new credit card simply for the rewards?

by Taylor Kovar

Hi Taylor: Is it a good idea to open a new credit card just for the rewards? Some of the sign-up bonuses and offers look like really good deals, but I'm not sure I need another credit card. - Emily

Hi Emily:
The short answer is - it depends, but here are three important things to consider.

First, let's quickly talk about the different kinds of rewards offered. It has become common for credit cards to offer rewards on "eligible purchases" in the form of points awarded per dollar spent, "cash back" rewarded as a percentage of spending, or travel rewards (such as airline miles/points). In fact, many airlines now have their own major credit cards to reward cardholders with airline miles and special privileges as a tactic to win loyal flyers. There are also department store cards that will offer perks to their cardholders. I generally suggest avoiding these store cards as they can encourage unnecessary spending and the APRs are usually higher.

With that said, opening a major credit card (Visa, MasterCard, American Express or Discover) with rewards may be a good idea if:

1. You have read the fine print, the requirements are obtainable and the reward is useful and worth the extra effort. One popular lure is offering a sign-up bonus, such as 25,000 bonus points. While these rewards may be enticing, it's important to consider the limitations to redeeming these. Airline miles may have blackout dates or other restrictions for redemption. Also, read the fine print; it may be called a sign-up bonus but require a spending minimum along with other restrictions to receive the bonus. Many reward cards come with annual fees and sometimes higher APRs that negate the value of the reward.

2.
You can find a way to shift your typical spending to the reward card (temporarily). If gas, groceries and other things you purchase on a regular basis count as eligible purchases toward your reward, you could use the card for these purchases and then pay it off every month or immediately after meeting spending minimums. Make your commitment to pay off this extra debt concrete by taking this money out of your budget and setting it aside for the credit card payment.

3.
You understand the ramifications to your credit score. If you've recently opened other accounts or applied for a loan, having several recent credit inquiries could negatively impact your score. However, in the long term, the new card could raise your credit. It can reduce your utilized credit percentage (credit used vs. credit available) and keeping the account open adds to the longevity of your credit history.

In the end, just remember that there will always be other credit cards, with other enticing offers, so make sure that whatever card you decide to go with is one you will be happy with after the honeymoon phase is over. Good luck!



Taylor Kovar May 22, 2022
More "Go Far With Kovar"



Legal Disclaimer: Information presented is for educational purposes only and is not an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. To submit a question to be answered in this column, please send it via email to Question@GoFarWithKovar.com, or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.


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