The holidays are still many weeks away, but the shopping season is already in full swing. This time of year it’s hard enough to stick to your budget, and using credit cards for your holiday purchases opens up opportunities for mistakes that could impact your personal finances well into the New Year.
Still, thanks to credit card rewards and strong consumer protections against fraud, using credit cards for your holiday shopping can be a savvy move, and it’s one that even more American can make this year. The number of credit card holders grew by 10 million in the second quarter of 2016 to 133 million, with half of new card owners in their 20s, according to TransUnion.
Related: The 20 Most Expensive Shopping Streets in the US
You just need to be aware of the potential pitfalls and have a proactive plan to make sure you’re being smart about charging your holiday purchases. Follow these steps to make the most of spending with credit cards this season:
1. Know your limit.
The amount you should spend on your credit card is not the limit provided by your credit card issuer, but the amount that you can pay off when the bill comes at the end of the month. The extra money you’ll spend paying off interest if you can’t pay off the balance can make all your purchases much more expensive and negate any potential card rewards. “It’s fine to use a credit card as long as you make a budget, and actually stick to that budget once you get to the store,” says WalletHub Analyst Jill Gonzalez.
2. Use the right rewards cards.
Make sure you’re using a card that pays you back for the type of spending that you do. If, for example, you’re booking holiday travel, you may want a card that offers hefty rewards for those purchases. But if you do a lot of entertaining this time of year, you might be better off with a card with rich rewards for supermarket spending. “It’s a good idea to review your rewards cards occasionally to make sure you’re getting the best rewards, and before the holidays is the perfect time to do that,” says Gerri Detweiler, head of market education for Nav, a website that helps entrepreneurs build and manage their business and personal credit profiles.
See whether your current cards have any special promotions for the holidays. American Express, for example, is offering double rewards to consumers who shop at small businesses through the end of the year, while Chase is giving cardholders 5 percent cash back at department stores and wholesales clubs.
3. Consider a new card.
If you’re using the wrong rewards card, now’s a good time to open a new one. The value of initial rewards bonuses is at a record high, with an average of $101 or 15,600 points/miles for new applicants, according to WalletHub. Note that while the rewards are valuable, opening a new card will temporarily ding your credit score, so don’t open a new card if you’re going to need to take out a large loan, such as a mortgage, in the next few months. You typically need to spend a minimum amount in the first few months of getting the card in order to get the signup bonus. If you don’t think you’ll hit that amount, it’s not worth opening the card.
Related: Are Cash-Back Shopping Sites Legit?
Shop around for a new card on comparison sites like CardHub.com or NerdWallet, which provide information on the latest-sign-up bonuses and enable you pick a card that will maximize your spending patterns.
4. Skip the store card, usually.
Retailers often offer consumers a big discount when they open a store credit card. That can be a tempting deal, especially if you’ve bought multiple gifts and have racked up a big bill. Be sure to read the fine print to make sure there aren’t fees or limits that make the offer less appealing.
Also, consider whether you’ll actually use the card again. If not, you should probably pass. Store cards typically have higher interest rates and lower limits, so one shopping spree could cause a spike in your credit utilization ratio and credit score. If you do frequent the store, there are some store cards, such as the Target Red Card, that could be worth it.
5. Take advantage of perks.
Beyond rewards, there are some perks of shopping with a credit card that are particularly valuable during the holidays. Many large credit cards offer price protection, which will refund the difference if you buy something and the price drops within a certain period of time. This can be a particularly valuable perk during the holidays, since it allows you to shop early and get the benefits of last-minute sales.
Related: The Hidden Risk in Online Holiday Shopping
Other important benefits offered by many cards include warranty extensions, fraud alerts and lengthened return periods.
6. Use shopping portals.
Many large card issuers now run their own online shopping portals, which link to all major retailers. These sites not only offer exclusive discounts, but they also often offer additional cash-back rewards on top of those you’d earn from simply using the card. “If you’re shopping online, you’re short-changing yourself if you don’t check to see whether your card issuer has a relationship with the merchant through their portal,” says Ben Woolsey, president and general manager of CreditCardForum.com. “That extra step could double or triple your cash back.”
7. Download the app.
Most of the major credit cards offer their own apps, which allow you to track and redeem rewards in real time. If you want to manage more than one rewards card, try the apps AwardWallet, which tracks your rewards and lets you know before they expire, and The Points Guy, which helps you figure out which card to use in order to earn the most valuable rewards for a specific purchase.
