10 cash back credit card mistakes you need to avoid

When it comes to credit cards, Americans overwhelmingly prefer cash back credit cards over other types of cards. According to Bankrate’s credit card features survey from 2021, more than 4 in 10 (or 41 percent) of adults listed cash back as their favorite credit card feature — which was, by far, the most popular answer.

But that same research reveals that we don’t always make the most of card rewards. What the survey also showed was that 33 percent of cardholders did not redeem any rewards in 2020, which is generally a big mistake to make.

If you’re using credit cards, chances are that you want to get the most out of them. And to do that, here are 10 common cash back mistakes to avoid — along with a few tips for squeezing every dollar from those rewards.

1. You’re not using the credit card that best suits your lifestyle

“With cash back cards, there are so many flavors and options,” says Marc Bellanger, director of client marketing for Visa. And depending on your lifestyle and where you spend money, there may be a card that will enable you earn more, he added.

The secret: Tally up how much you’re spending in various categories, such as travel, dining and groceries, says Julie Pukas, head of U.S. bankcard and merchant solutions for TD Bank.

“Really understand what you are looking for and where you are spending,” Pukas says.

And if you’d rather not have to figure out what card to use on every purchase, perhaps a flat-rate cash back card is the way to go.

The other factor in the equation is annual fees.

“Using a no-fee card is a win-win,” says Zach Honig, editor at large at The Points Guy. And, some of the best cash back cards have no annual fee.

2. You’re saving credit card rewards or not cashing them in strategically

There are cardholders who forget to redeem cash back — even though it’s often simpler than redeeming points or miles, according to Bellanger.

“Redeeming often is probably a good thing to do,” Bellanger says.

The one exception to the rule is when you’re saving rewards to cash them in on another higher-rate card.

For example, if you have a Chase Freedom Flex℠ or Chase Freedom Unlimited card, you accumulate cash back benefits worth about 1 percent to 5 percent.

But if you bank those rewards and redeem them for travel through Chase Ultimate Rewards with one of the Chase Sapphire cards, you can get an extra bonus worth 25 percent to 50 percent of your points.

So, if you plan to travel frequently, turning your cash back into points could help you score major rewards.

Expert tip: Take advantage of the fact that some cards will let you trade your cash back rewards for points or miles on another of the same issuer’s cards.

3. You’re not registering for those quarterly bonus categories

While some cards offer extra bonuses on specific categories year-round, others increase your cash back in rotating categories — which change quarterly — if you register for them online each quarter.

In some cases, such as with certain Chase or Discover cards, this can quintuple your cash rewards.

“If you’re not activating those quarterly bonuses, that’s a mistake,” Honig says. It’s also a good time to note the new spending categories, so you’re using the card that gives the most for your purchases.

Expert tip: Add a reminder on your calendar to sign up for rotating categories every quarter. 

4. You’re not using rebate coupons and shopping portals to boost cash back

The other mistake too many consumers make: Not using coupon apps, coupon codes and shopping portals to stack extra savings on top of cash back rewards, says Brian Preston, CFP, managing principal for Abound Wealth and host of The Money Guy Show podcast.

If you can pile up cash back bonuses, portal rebates and coupon codes, “that’s the trifecta,” Preston says.

“As a consumer, my advice is ‘don’t get starstruck’ by that [sign-up] bonus amount. Make sure the underlying value is going to be lucrative for you over the long term,” he added.

Expert tip: Pay attention to and use coupon apps, coupon codes and shopping portals to add to your cash back rewards.

5. You’re drawn in by sign-up bonuses

“Most cash back cards have some kind of upfront bonus,” Bellanger says.

The average sign-up bonus requires you to meet a minimum spend, usually during the first three months after opening the account, and amounts to about $150.

Those bonuses are a nice plus. But if you plan to use the card regularly for a few years, focus on the return rate you get for the things you want to buy instead, Bellanger says.

That way, long after you’ve redeemed that bonus, you’ll still have a card that’s rewarding you when you use it.

“As a consumer, my advice is ‘don’t get starstruck’ by that bonus amount,” Bellanger says. Instead, “make sure the underlying value is going to be lucrative for you over the long term.”

Expert tip: Sign-up bonuses are great, but make sure you don’t get sidetracked by them. Instead, choose a card that will reward you over the long haul for the everyday things you buy. 

6. You’re ignoring spending caps

Some credit cards will cap spending limits for cash back rewards. After you hit the cap, you can still earn cash back, but at a lower rate (usually the minimum the card pays). This means you’re wasting the chance to max out rewards for money you’re already spending.

Instead, aim for a cash back card that covers what you already spend, either overall or in categories such as gas, groceries and dinners out. Or consider using multiple credit cards to maximize your cash back rewards instead.

For example, the Costco Anywhere Visa® Card by Citi offers 4 percent back on up to $7,000 in eligible gas and EV charging purchases (then it’s 1 percent) every year. Even at $6 per gallon, that’s roughly 22.5 gallons a week.

Expert tip: Consider using multiple cards to maximize your cash back rewards, or get one that covers you in categories you already spend in.

7. You’re using cards for ‘autopay’

Using a cash back card for bills is a great way to hit spending thresholds and rack up cash rewards.

“Essentially, it’s a 2 percent off coupon,” Preston says.

But that doesn’t mean you have to put bills on autopilot, Honig says. After frequently finding small erroneous charges on bills, Honig has learned that “it makes sense to review everything” — and use the cards to pay electronically without putting bills on autopay.

Also, if bills are larger than expected (and too much for your credit line), that autopay could max out your card. Or the payment could even be denied. Any resulting penalty fees might also cancel any hard-earned cash back on your card.

Expert tip: If you still opt for autopay, review your statements on a regular basis. That will help you spot billing errors as soon as they occur.

8. You’re not avoiding foreign transaction fees

While many elite rewards cards have eliminated foreign transaction fees, some cash back cards still have them, Honig says.

Foreign transaction fees generally add 3 percent to your purchases made abroad, and you don’t have to be a high-flyer to get hit with them. “If you make purchases [from websites or companies] outside the U.S., it’s something to keep an eye out for,” Honig says.

“If you’re getting 2 percent [cash] back but paying interest, you’re negating any potential benefit from a cash back card,” he added.

Expert tip: If you plan to use your cash back card while traveling outside the U.S. or at foreign websites, consider signing up for a card that doesn’t charge foreign transaction fees.

9. You’re carrying a balance

“If you’re getting 2 percent [cash] back but paying interest, you’re negating any potential benefit from a cash back card,” Honig says.

About 40 percent of Americans don’t pay off card bills in full every month, according to the American Bankers Association. That’s a losing game.

The average APR on cash back cards is about 1.3 percent monthly, so if your cash back card is paying 1 percent, you’re leaking money. And if you’re getting 2 percent, you’re barely breaking even.

If you want to get everything possible out of your cash back card, spend only what you can afford to pay each month. And if you need a card you can occasionally revolve, shop for one of the best 0 percent APR credit cards.

Should you run up a balance you can’t pay, take the cash back card out of circulation and consider putting those rewards toward your current balance.

Expert tip: If you want to get all you can from your cash back card, pay your balance in full each month. That way, the interest you’ll have to pay if you carry a balance won’t negate your rewards.

10. You’re sticking with the same old card

In the credit card business, new customers get the rich sign-up bonuses, promotional rates and generous perks. While changing cards can be a pain, it’s often the only way to trade up. It’s also a good way to pick up the cards that will offer you the most when your spending habits change.

Switching cards doesn’t have to sink your credit if you do it correctly, either. If you’re looking at switching cash back cards (and closing one), just make sure you’ve cashed out all your rewards before you close the account.

Expert tip: If you do switch cards, don’t leave any rewards on the one you’re closing.