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The Simple Dollar

Credit scores: Advice to a college student

Credit scores: If they're high enough, you can get a good credit card. Question No. 2 in this reader mailbag.

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It depends on whether you want to do the honest thing (paying debts you incurred) or the thing that’s best for your credit history (not paying them).

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This is a situation where honesty is not rewarded, and I actually think it’s really messed up. If you have a debt you haven’t paid and then you are able to pay it off and do so, it should benefit your credit history. Quite often, on old debts, doing that hurts your credit history.

You have to answer the honesty conundrum yourself. It’s not something I can tell you – you have to ask yourself.

Q10: Dealing with rewards points
I currently have about 17,000 reward points for my credit card. I get approximately 1 point for each dollar spent on the card. I use my credit card for a lot of purchases and expenses for the very reason of getting the points and then redeeming them for cash. (Don’t worry, I pay the full balance every month.) My question is how long should I wait to redeem the points for cash?

I can redeem 15,000 points for $120 cash ($.008 per point). The next opportunity to redeem points for cash is at 20,000 points, which provides $160 cash (still $.008 per point). After that the next step is 25,000 points, which are redeemable for $250 cash (a bump up to $.01 per point). In the past I’ve accumulated a bit more than 1,000 points per month, but because I’m trying to reduce my spending overall (thanks in part to your blog) that came down to just over 900 points last month (a trend I hope to continue). Hopefully it won’t be up up to 1,000 points again or at least not regularly.

My savings account is an online account through Capitol One with a 1.30% APY rate (if you can suggest somewhere safe with a significantly better rate I’m all ears).

Given all this information, should I redeem 15,000 points now and put the $120 in my savings account, or should I hold out until I get to 25,000 points, which could be at least 9-10 months from now?
- Tanner

A bird in the hand is worth two in the bush. I would cash in the points immediately.

Why? Let’s say you lose your job and are unable to pay a bill or two. The balance builds up. The bank decides to cancel your card. Boom – you have nothing.

There are any number of reasons why you wouldn’t be able to get the bigger amount. The program might change. The points program might be dropped altogether.

If you can get that rewards cash now, get it.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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