Guest Post: 5 Credit Card Reward Traps You Need To Know About
This is a guest post from Michael at Credit Card forum.
These days it’s hard to find a credit card on the market that does not offer some sort of a rewards program. Consumers have come to expect them and banks are willing to give them, since they incentivize us to charge more. But at the same time, banks want to maximize their profit, so often times they impose tedious – or outright dubious – rules for their credit card reward programs.
Since the credit card reform went into effect, many banks have even stepped up their tricks and traps on reward programs, in order to make up profit shortfalls in other areas resulting from the legislation. However, you can beat them at their own game if you play your cards right, literally. Here’s how…
(1) Make sure you “opt-in” to earning higher cash back
Who wouldn’t want 5% cash back, right? Well, as silly as it sounds, most of the 5% cash back credit cards won’t actually give it to you unless you basically tell them you want it… by “signing up” or “opting in” each and every quarter for the 5% categories. Why is it set up this way? Well, probably because they hope some cardmembers will forget to do it (and therefore, they won’t have to pay them the 5%). So if you have one of these cards, don’t forget to opt-in to your 5% rewards! Usually it can be done via online account management or over the phone. Online credit card reviews by customers frequently cite this as one of their top complaints.
(2) Pay close attention to caps on rewards
Another “gotcha” trick are the caps on your higher reward categories. Up until recently, the popular Chase Freedom card had no caps on their most lucrative categories, but recently they changed that. Now they have set a quarterly cap on the 5% cash back. For example, from October through December of this year, the 5% is limited on up to $1,500 of spending at department stores, grocery stores, and on movies. Obviously it’s still a great deal, but just make sure you are aware of those caps.
(3) Check if there are tiers on the rewards
One of the best cash back credit cards on the market is the American Express Blue Cash, which gives up to 5% at gas stations, grocery stores, and drugstores, plus 1.5% on all other purchases. Sounds great, right? Well, once you read the fine print you may feel differently – you first must spend $6,500 before you earn that level of cash back. On spending below that amount, you earn only one percent on those three categories and just a half-percent on other purchases. There are a handful of cards on the market like this that require you to spend a certain amount before you are in the best rewards tier.
(4) Be careful what you redeem your rewards for
Once you have accumulated a nice chunk of rewards, make sure you compare and contrast the redemption option values. For example, you can redeem your Discover cashback bonus for a statement credit at face value. Alternately, you can redeem it for gift cards which give you more bang for your buck – i.e. a $50 Gap gift card will only require $40 in rewards. For most people, it usually makes sense to choose the option that is the best value.
(5) Don’t let your rewards expire
Some credit cards like the Chase Sapphire proudly boast that points never expire, however the majority of credit card programs do have a time limit on redemption – typically 36 months, but some as short as 12 months. Whatever the case may be, make sure you know when your points, miles, or cash back will expire. Don’t wait until last minute to figure things out, because even if your points are expiring next month, you may not have enough to cash them out (for example, having 2,000 points when the minimum needed for redemption is 2,500). But if you know far in advance that your points are going to expire, you can spend some extra to ensure you meet the minimum threshold for redemption.
Remember, credit cards rewards may sometimes be confusing and frustrating, but if you know all the rules, they can definitely be used to your advantage!
Michael is a senior writer for Credit Card Forum, which is a social media site for credit card reviews. He is in charge of reviewing cash back credit cards but also writes regularly about other personal finance topics.
