Understanding Credit Cards: Credit Card Rewards Programs

by Amy Lillard

Credit and credit cards are an integral part of our economic system today. But there is a lot of misinformation and misunderstandings about credit. In this continuing series, we examine key concepts, tips and best practices when it comes to credit cards.

(12/12/2012) Credit card companies want more customers. That's one of the reasons rewards programs have become so popular among cards and consumers.

Generally, rewards programs give consumers points for money spent. The points can be accrued through spending on certain items, and apply for:

• Airline miles. If you fly frequently and use a credit card on a regular basis, a card with a airline rewards program may be a great choice. The key to obtaining a good deal on these cards is the read the fine print. Each will probably have blackout dates, meaning times in which you cannot use your miles. Plus, there may be restrictions and other rules about redeeming miles which may limit their usage.

• Cash back. Certain cards award a percentage of the purchase amount as cash back. Some cards award higher percentages for certain categories of items like travel, gas, groceries, restaurants, and more. Again, know the rules — some cards require you to spend a certain amount prior to earning any cash back.

• Gift cards. Cards offering gift cards rewards typically award points per dollars spent. You can then redeem the points for gift cards to restaurants, or general Visa or Mastercard gift cards. Examine how these work carefully, as some programs require an exorbitant amount of points for a small dollar amount gift card.

• Gas. Certain cards offer you cash back on gas purchases, a nice perk for frequent drivers. There may be levels of cash back — credit card companies may award a certain percentage up to a balance amount, and a different, reduced percentage after. Or there may be a threshold balance to reach before the perks kick in.

• All of the above. Some general credit cards provide a virtual marketplace at which you can spend your rewards points towards any number of items. They can include all the items listed above, plus travel discounts, local items, or once-in-a-lifetime experiences like meeting sports heros or backstage passes to events.

Overall, remember that rewards programs may have fine print to read carefully, including rewards expiration dates, caps, redemption fees, shipping fees, or changing values. Watch for how easy it is to redeem your points, whether it's an online system or a catalog. Experts recommend looking for a rewards program that reward you for activities you do frequently, whether it's shopping, driving or flying.

For Additional Reading:

How Much Do You Need to Spend to Earn Credit Card Points? http://www.investopedia.com/financial-edge/1211/how-much-do-you-need-to-spend-to-earn-credit-card-points.aspx#axzz2DTmbQ0ES