January tune-up: Your credit cards

air-miles-cardCredit card rewards programs change so often that it makes sense to review your “credit portfolio” at least once a year—and now’s as good a time as any.

This post is directed at people with good credit who don’t carry balances. If that’s not you, then focus on paying off your credit card debt and store this information for future use.

If you do have good credit, you probably want to keep it that way. That means not closing or opening a bunch of accounts at once. You can, however, selectively prune your portfolio by closing an account or two and add the occasional new card without tanking your scores. Just don’t open or close accounts while you’re in the market for a major loan such as a mortgage, HELOC or auto loan.

With those caveats covered, your first task is to review the cards you have now to see if they still deserve a place in your wallet. The first to go: any card you’re not using that charges an annual fee. If the card doesn’t charge a fee but you haven’t used it in a year or more—and see no reason to do so in the future—you’ll have to weigh whether the hassle of monitoring the account outweighs the potential ding to your credit.

Because we have more than two dozen open credit accounts, many with high limits, I finally shut down a couple old Chase cards we hadn’t used in eons…with no perceptible impact on my scores. I also shut down a British Airways card that charged an annual fee because I had a better alternative—a Starwood Preferred Guest Amex card that has a great earn rate and a huge array of ways to use rewards, including a way to dump points into my British Airways frequent flier program, should I want to do so.

Next scrutinize the cards you do use. Are you able to earn rewards at a good clip and cash them in easily? You should be getting an average rewards rate of at least 1 percent and preferably closer to 2 percent of your purchases. (Some programs deliver even more.) If you’re not using your rewards, are you working toward a reasonable short-term goal? Given how fast points and miles get devalued, you don’t want to delay too long in using them. Remember the mantra: Earn ’em and burn ’em.

Now see if there may be better cards for your needs. Check out NerdWallet’s list of best reward cards, which is updated frequently. (Looks like you also can ask for advice and recommendations in the comments.) Another site I like to check for great travel rewards card offers is The Points Guy.

Think about how and where you use your cards and what type of rewards you’re after. Cash-back cards are typically the easiest rewards to get and redeem. Hotel cards can give you elite status with certain perks. Airline-branded cards can make sense for frequent fliers—if you check a couple of bags on a couple of flights, you’ll often offset the annual fee. More general travel cards can allow you to put miles into different plans or offset the costs of travel.

Ideally, you’ll find a card that meets your needs while offering a fat sign-up bonus. To get the bonus, you’ll have to spend a certain amount within a certain time, so make sure you can do that before you submit the application.

While cars no longer require traditional tune-ups, your finances still do. This month I’ll be reviewing some areas of your money that deserve some extra scrutiny and offering suggestions for the best moves now. Stay tuned for more posts–and to make sure you don’t miss any, you can sign up for my newsletter using the link on my home page.

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