Using a cash-back credit card can seem pretty simple: Use the card to buy things and you’ll get cash back from your credit card company.
Getting that free money of 5 percent or even more on every purchase is easy, but there are some mistakes that cash-back credit card users make that can cost them in the long run or prevent them from getting the most cash back allowed.
Here are some of the worst mistakes to make with cash-back credit cards:
Spending to earn more
Buying something for the sake of earning more cash back rewards is wasted money. If a purchase is unnecessary, then doing it just for the rewards is equally unnecessary.
Why spend money to earn a little money back? Most of the purchase price won’t be returned anyway, with 1 percent payback the norm. Even at 5 percent in rewards, that leaves 95 percent of the purchase price of something you don’t want or need thrown away.
High annual fee
A cash back reward is essentially getting a discount on a purchase. If you’re going to buy gas and groceries anyway, you might as well get 5 percent cash back on them if you can with the right credit card.
Add in the cost of an annual fee, and it can take a few thousand dollars in spending in a year to earn enough cash back to make up the difference between the fee and what a no-fee card charges.
If a cash-back credit card has an annual fee of $75, for example, and pays 5 percent cash back for grocery store purchases, it would require spending $1,500 to get that $75 fee back. That’s a lot of groceries to buy before getting money in your pocket.
Another area where cash rewards can be eaten up is by card holders who don’t pay off their balances in full each month or on time and pay interest on their credit card balance.
People who pay interest each month are often charged a higher interest rate on their cash-back card than if did the same thing on a credit card with no rewards.
If you regularly carry a balance on your credit card, look for a card with the lowest interest rate. Don’t look for one with rewards.
Private retailers, government entities and public utilities sometimes charge a transaction fee to consumers who use a credit card. This fee can easily exceed the cash back you’d get on a cash-back card.
Credit card companies don’t allow many businesses to charge a fee for using a credit card, though the business cost can be passed on through higher prices or a minimum charge. Ask if there’s a fee before you swipe.
Not registering for bonus categories
To get the most out of a cash-back credit card, look for a card that gives bonus rewards on certain purchases.
While 1 percent cash back is common on all purchases, some cards offer a 4 percent bonus for a total of 5 percent for buying from certain types of merchants. These can include restaurants, travel, grocery stores, gas stations, airfare and hotels.
The categories may change every quarter, with airline purchases earning 5 percent back for three months, then changing to purchases at movie theaters, for example. The category may have a cash back limit.
To get in on these bonus categories, some cards require you to opt in each quarter and manually select which category you want to earn money back on. Some credit cards make it as simple as “registering” your card online, logging in to your account and clicking a button.
Not using the right card for bonuses
If you have a few credit cards, it can be difficult to juggle them and remember which card has which bonus for the purchase you’re making. With the bonus categories changing each quarter, it can be difficult to remember which card to use to get the most cash back from it.
Using a cash-back card that you thought had a bonus at gas stations but instead had a bonus at department stores can leave you with a lot less cash back than you thought you’d be earning.
Not using online portals
Some credit cards have online portals that offer double or five-times the points for purchases from specific retailers. Some rewards can be much higher.
The credit card issuer will require the customer to log in to the shopping portal and click on a specific retailer to make their online purchase and earn the most rewards. If you shop online often, this can be a worthwhile exercise — just make sure the final price is less than what you’d pay elsewhere.
Not reading the fine print
When you first get a credit card in the mail, it usually comes with a small booklet of fine print on the rules of using the card’s reward program. Cash-back rewards can be especially full of rules worth reading.
Some may only allow bonuses at restaurants in the United States, for example, while others with bonuses for buying gasoline may only allow gas to be bought at “standalone” stations and not at gas stations that are at supermarkets or warehouse stores.
Not knowing those caveats can prevent you from getting the most out of a cash-back credit card. After all, if the point of such a credit card is to earn as much money back as you can on purchases you’re normally making anyway, then you might as well use the card wisely and to your advantage.