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How to make the most of a new travel rewards card

Erica Sandberg

November 25, 2015

QHi Erica,

I've been following your advice and looking at all reward cards before applying, and I now have one picked out that looks very good: Venture by Capital One. I think I will qualify (my lowest FICO score is 736 and my highest is 751), and the card's rewards seem high. My question is about this specific offer line: ”Enjoy a one-time bonus of 40,000 miles once you spend $3,000 on purchases within the first three months, equal to $400 in travel.” I understand that I have to spend that much, but what happens if I don't pay it off in the first three months? Do I not get the points?  I want to make sure I can do this right before I apply because I want to get plane tickets with the rewards points. Cheers! — Liz

ADear Liz,

No worries. As long as you charge at least the required amount in the time frame outlined in the agreement, and make your payments on time, the points will be yours. How you charge the $3,000 over those three months is up to you.

Of course, the issuer won't mind if you repay the balance slowly, but I strongly advise against doing so. If you make at least the minimum payments on time but let the debt linger, the points worth $400 in travel perks still will be available, but the financial advantage will be eroded by fees. Here's why:Ask Erica

The card you're interested in has an APR that could be as high as 22.9 percent, based on an applicant's creditworthiness. If 22.9 percent is your assigned interest rate and you pay the debt down in one year, the finance fees would be $385. That would dilute the reward value to a piddling $15. It's even worse if you decide to just send the minimum requested payments. Doing that would cost you about $4,290 in interest fees and take more than 14 years to repay.

Don't like the sound of that? You shouldn't. Keep the reward value intact by making sure the balance is at zero, no matter how much you charge. That can be tricky with the $3,000 requirement, so make sure you can manage such a debt load before you create it.

To do this, analyze your complete financial picture and develop a payoff plan. The ideal scenario begins with savings. For example, you may have $5,000 set aside for extra expenses. In that case, you'd simply charge the desired items and then pay the balance off immediately using your savings.

The second-best payoff plan would be based on income. Develop an accurate budget by listing expenses and subtracting the total from your income. If you have more than enough left over to repay what you borrow, you're good to go.

I also want to point out that your credit scores are wonderful, but keeping balances high while using the new card to procure the points can negatively impact your scores. Paying on time is the most important FICO scoring factor, but credit utilization is a close second. Keep the new card's balance extremely low relative to the credit line to preserve your hard-earned credit scores.

And a warning: Making payments on time is key to earning the travel points with this card. Quoting Capital One's site, “If your account is subject to late payment fees and if a late fee is charged to your account, you will lose any rewards applied to your rewards balance during the billing cycle containing the late fee.”

So make sure your payments are posted on time, before the issuer alerts the credit reporting agencies of your balance. When you get the card, call Capital One to find out on which day of the month it relays cardholder activity to the credit agencies, then send your payment before that date. Doing so also will help preserve your credit scores.

If you follow these guidelines, after the three-month introductory offer period is over, you can relax. You'll have a debt-free credit card ready to help you build even more rewards points, but without the pressure to borrow to the hilt.

Glad you're taking my sage advice, too!

Got a question for Erica? Send her an email.

SEE RELATED: 6 ways rewards cards can change your life (for good or bad)

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