Do you plan to spring for a shiny appliance, fancy new furniture or a pricy gadget?
Instead of impulsively reaching for the top card in your wallet or signing up for a store-financing deal at the register, take the time to assess your finances — and pick a credit card that helps you rack up rewards and protect your investment.
Follow these five strategies for making a big credit card purchase pay off:
1. Size up your finances
In an ideal world, you’ll plan and save up for fun purchases like a new sectional or a bigger TV and will build an emergency fund to cover unpleasant surprises like a seized-up car transmission or busted garage door. If you do have plenty of cash in the bank to cover your planned purchase, you can pick the card that offers you the biggest bang for your buck in terms of rewards and protections. If not, you’ll have to focus on minimizing financing costs and paying off your debt as quickly as possible.
2. Choose the right card
If you do need to pay off your purchase over time, and you can’t delay and save up for the item, your top priority should be on finding the best low-cost financing. One option, especially in a pinch, is to use a trusty low-interest credit card that’s already in your wallet. But if you have good credit, you can save more money by seeking out a 0 percent financing deal. It’s better to take advantage of an offer from a credit card issuer than a deal from a store, says Wayne Sanford, a credit expert and owner of New Start Financial, a Texas-based credit consulting company. If you get financing through a store and don’t pay off the full balance in time, you can get hit with interest on the whole purchase amount, back-dated to the purchase date, which can hundreds of dollars to your bill.
“That interest can just pop up and hit your account,” he says.
3. Make sure you’re covered
It’s also smart to make sure the card you plan to use offers added protection for your purchases. Many cards some with purchase protection, a handy feature that will replace, repair or refund the cost of an item that gets lost, stolen or broken within a certain window of time, often 90 days after purchase. And extended warranty protection, which is especially important for appliance or electronics purchases, will stretch out the manufacturer warranty by as much as a year at no cost to you. Check the fine print for details to avoid surprises, and save the receipt in case you need to file a claim.
4. Pay attention to your credit use
Whether you plan to finance your purchase on a card or pay your bill in full right away, consider the credit ramifications of plunking down a lot of money at once. Your credit utilization ratio (the amount of available credit you’re using) accounts for about 30 percent of your FICO score. To protect your credit, look at how much total available credit you will have on all your cards after you make your planned purchase. Shoot for keeping your utilization rate below 30 percent at all times. For example, if you have $10,000 in total available credit with no current balances on your cards, and you plan to purchase a $2,000 washer and dryer set, your utilization rate will be 20 percent, which is fine.
It’s also important never to max out a single card. If your big purchase would eat up most of the limit on the card you want to use, call the issuer to request a credit line increase, Sanford recommends. Even if you plan to pay off your balance in full quickly, using too much of your credit limit right before you apply for a car loan or mortgage can cause problems, Sanford says. For example, when his dog Noah got very sick recently, he maxed out a credit card at the emergency vet, knowing he would be reimbursed by pet insurance for most of the $14,000 bill. But maxing out the card caused a temporary drop in his score, so he had to delay a planned car purchase to get the best available interest rate.
“When you’re looking at making a big purchase, timing is everything,” Sanford says.
5. Boost your rewards
When it comes to maximizing rewards, you have several options and may be able to combine strategies, such as getting a new card with a sign-up bonus and making your large purchase through the issuer’s shopping portal. Here are three possibilities to up your rewards earnings:
- Snag a sign-up bonus. Many rewards cards come with sign-up bonuses big enough to get you packing for your next dream vacation. However, there’s a catch: To get a bonus, you have to spend a certain amount (typically $1,000 to $3,000) in a certain time period (usually the first three months after opening the card). This is known as minimum spend, and it can be challenging for some consumers to meet, says Rosemarie Clancy, vice-president of content and marketing for RewardExpert, a service that offers help maximizing rewards. With a big purchase, you can spend all or part of that amount at once rather than having to cobble it together with $50 grocery store runs and $5 lattes.
“It’s always good to get a big chunk of minimum spend out of the way,” she says. If you want to go this route, you’ll need to allow at least 10 days
to apply for and receive the card in the mail before you plan to make your purchase.
- Ramp up rewards with rotating categories. If you have a card that offers increased points or miles in rotating categories, it’s worth checking and even waiting to make your big purchase if it fits into an upcoming category. For example, Discover offers five points per dollar in categories that change quarterly. For Q2 2017, those categories are home improvement stores and wholesale clubs. However, you may need to sign up ahead of time for the points boost, and there are dollar limits for the accelerated earning. For example, Discover will give you extra points only on the first $1,500 you spend in the designated category.
- Shop through an online mall. Another way to boost your earning is to buy through a card issuer’s online shopping portal. If the item isn’t in stock at your local store, you may be able to have the purchase delivered to the store to avoid delivery fees and allow you to see the item in person before you take it home. Many shopping portals offer two, three, five or more points per dollar spent at various department, home improvement and home goods stores. If you own several rewards cards, check all of their online portals to see which one offers the biggest increased rewards at the store you plan to buy from, Clancy recommends. For example, one card might offer three points per dollar spent at a certain store, while another card might offer five at that same store.
Some card issuers known for robust shopping portals include Chase and Barclaycard.
Because rewards from a big purchase can really add up, especially when you can multiply your points, put some effort into hunting for the best rewards return, Clancy says. “It’s worth a little bit of extra legwork,” she says.