A Man Earned 422 Million Credit Card Rewards Points: What You Can Learn

How many credit card points do you have? It’s not as many as Liu Yiqian, a Chinese billionaire who recently used his American Express card to purchase a $36 million antique cup at an auction, according to a report from Bloomberg News. While the article presents some of the details of his purchase, we can also learn several lessons that can apply to less wealthy shoppers.

1. You could use a credit card to buy major items.

Many people fail to consider their credit cards when they make a large purchase, but this story shows us that there isn’t anything too expensive for an individual to purchase with a credit card, so long as the card issuer offers you a large enough line of credit. So for Liu Yiqian, who Forbes says has assets of more than $1 billion, this $36 million purchase must have been well within his credit line. Yet the rest of us might consider charging automobiles, home renovations, and college tuition to a credit card in order to earn rewards. The key is to first notify your card issuer in advance to ensure authorization of a large purchase, and to avoid interest charges by paying the statement balance in full and on time. However, keep in mind that your credit card balances, even if paid off in full every month, impact your credit scores. You can see how your credit card spending is affecting your credit scores for free on Credit.com.

2. Learn about rewards.

Surprisingly, Liu Yiqian didn’t even consider the potential to earn rewards before making such a large purchase, according to the Bloomberg article. This is a mistake. Those who use their credits to make large purchases, even ones that are just a few hundred dollars, should consider the rewards they might earn. In many cases, using the right credit card can offer rewards worth up to 5% of the amount spent, which equates to a significant discount. In addition, some cards offer rewards that are far more valuable than others, so it makes sense for credit card users to find a card that offers the best rewards for the purchases they are making.

3. Look out for credit card surcharges.

The Bloomberg article says that American Express collects an average of 2.5% from each transaction in the form of merchant fees. If this was the case, Sotheby’s auction house of Hong Kong would have paid American Express $900,000 in fees. While it is not clear if Sotheby’s added a surcharge to the purchase, sometimes buyers can negotiate a lower price if they choose a different form of payment. Although credit card surcharges are illegal in many states, cash discounts are permitted. So you can ask merchants if they would be willing to offer a cash discount that might be worth more to you than any credit card rewards you might earn.

4. Use your points for travel, not retail purchases.

The article states that Liu Yiqian earned 422 million points, but these points are based on the Hong Kong dollar and have less value than American Express points offered in the U.S. Ultimately, he can redeem these points for more than 28 million frequent flier miles or about $180,000 worth of credit to a retail store. So he will receive only about 0.65 cents (US) in value per point if he redeems his points for retail purchases, but he could easily realize several cents in value per point if he uses them for airline miles with partners such as Singapore, Emirates, Virgin Atlantic, and British Airways. These carriers offer international first-class awards tickets that can cost well over $10,000 each for a mere 100,000 to 200,000 miles. So considering that he can redeem his points for more than $1 million worth of airfare for himself, his friends, and his family, or less than $200,000 worth of merchandise, the frequent flier miles are a much more valuable option.

But you don’t have to have millions of reward points to use the same logic when you spend your own credit card rewards. Cardholders can often realize 2 to 4 cents per point in value when transferred to frequent flier miles or hotel programs, but rarely receive more than a penny per point worth of merchandise or gift cards.

As you maximize your credit card rewards, keep in mind that if you carry a balance from month to month, it’s almost never a good idea to make a purchase for the rewards you’ll earn due to interest costs. Going into credit card debt is rarely a good idea.