Offered by merchants of all types, rewards programs are marketing tools that encourage brand-loyalty purchasing through
- Price discounts
- Bonus points and/or coupons toward future purchases
- Donations to your favorite charity
- And even cash rebates.
If you’re part of the program, you access it by using a membership card that looks like (and often is) a credit card. The card compiles information about your purchases and the rewards you’ve earned; it also stores information about you that’s useful to the merchant when tailoring advertising that’s pitched to your spending preferences.
While many rewards programs offer credit with (and rewards from) a particular merchant, other programs, offered by credit card issuers, may allow you to earn rewards, such as gift certificates, that may be used with a wide variety of merchants. And in most cases, these cards offer the option of earning cash back each time you use the card. A cash back reward can be used anytime, anywhere.
The rules, restrictions, and limitations on what you may earn through a rewards program can be complex. Most programs offer a larger percentage reward for purchasing select products or categories of products than they do for all products. You may have to spend a minimum amount per month, quarter, or year to get any rewards, and there are often limits both on the amount of rewards you can earn and on the time allowed for cashing them in. What’s more, the originator of the rewards program may change the rules or cancel the program altogether with little notice or recourse.
The prohibition against certain dubious but profitable practices by the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, coupled with the overall tightening of credit, have made the reward card market less lucrative, and credit card issuers with rewards programs may begin to take steps to preserve their profit ratios. Such steps could include higher interest rates and annual fees, restructurings of reward policies that water down the rewards, inactivity fees, and/or reinstatement fees to restore points lost because of late payments.
How can I reap the most from a rewards card?
As you sow, so may you reap. To reap the most from a credit card rewards program, here are some things to consider.
Don’t do it just to have it. Because opening or closing credit cards may impact your credit score, don’t open a new account just to accumulate airline miles, merchant discounts, or any other rewards. Open a rewards card only if you need credit. And watch your spending. It’s often too easy to overspend just to get more rewards.
Compare, compare, compare. Comparison shop to get information on a card’s rates, fee structure, and the details of its rewards program, including any limits or restrictions. Consider what you buy most often and where you shop, and get a card that will work for you in those areas.
Cash back may be best. You may never rack up enough points to fly to Tahiti or get that bracelet from Tiffany’s, but everybody can always use cash, anywhere, anytime, for anything.
Don’t carry a balance. Because rewards cards often carry high interest rates, carrying an unpaid balance will create finance charges that may cancel out the value of your rewards. What’s more, if you are late making a monthly payment, you may lose your reward points, only to get them back upon paying a reinstatement fee.
Check your statements. You should check your statements monthly to make sure your purchases–and your rewards–have posted properly.
Learn the rules. Qualifying for rewards often involves a complex formula, and certain limitations may have to be met in order to redeem them. Read the fine print to keep track of these rules, and review them periodically to determine if the creditor has changed them.
Charity begins at home. Programs that donate your rewards to your favorite charity actually contribute only pennies for every dollar you spend, and you can’t deduct the donation on your income taxes. You (and the charity) may be better off if you get a cash back reward instead and then send a check to the charity.
Reprinted with permission from Forefield, Inc.