Essential features of reward credit cards.
Almost everybody wants to hold at least a reward credit card. The reason for this is simple. Rewards is the main motivation for the desire for reward cards, Reward can come in form of cash back, general reward points, gas rebates, airline miles points and retail reward points. Of all the reward credit cards, cash back and general reward points credit cards are the most popular. Just as the name implies, when you use cash back reward credit cards to make purchase, a certain per cent of every dollar you spend is refunded to you either in from of cash credited into your account or in form of cheque. General reward points cards is similar to cash back reward credit cards only that they are more flexible as you can redeem you point as cash, gift cards, cards to offset your travel or electronics purchase.
All these incentives are very attractive to consumers. But before you start applying for these reward credit cards, it is essential you understand what are involved. If you don’t take time to study the features of these reward credit cards, you may be surprised that your application may be declined because you don’t meet their requirements. The implication of this is that, your credit score may be lowered. Every time you apply for credit cards whether reward credit cards or otherwise, the information is reported to the credit bureaus. Of course, this is a hard inquiry and it can lower your credit score up to five points. The matter becomes worse if the application is rejected. For people that don’t know how to manage their credit, they can keep applying over and over. Before you know what is happening, their credit score may be dropped up to forty points. Depending on your existing credit score, forty points drop in your credit score can change credit status from good credit to fair credit or from fair credit to bad credit.
Another thing you may not know about reward credit cards is that what is usually advertised may not be realistic considering your own peculiarity. So, in this article, I will quickly reveal some secrets which you may not yet know about reward credit cards.
Secrets about reward credit cards
- It may not suit you: As mentioned above, there are different reward credit cards in the market. Each of these reward credit cards is targeted at particular set of consumer group. For instance, airline miles reward credit cards are targeted at people that fly frequently. So, if you just want to make one or two trips, it will not add any value to you if you apply for such a card. Of course, you may get the card but you may not be able to qualify for the rewards attached.
- It requires good credit score: Almost all the reward credit cards require applicants to have a very good credit score for their application to be granted. You understand that if you don’t have a good credit score, card issuers will be unwilling to grant high credit limit. So in order to be granted high credit limit, you will be expected to have excellent or at least good credit score.
- It requires minimum threshold. Reward credit cards are for big spenders. If you hold one, you need to ensure you use the card regularly. In term of volume, you must spend a certain minimum amount before you can qualify for the reward. Besides, meeting the threshold is not a guarantee that you will earn the reward. You need to meet the threshold within a specific timeframe. For instance, reward credit cards may have terms like: Earn 40,000 bonus miles after you spend $2,500 on purchases in the first 90 days. That’s enough to redeem for a $400 travel statement credit. This is a typical example of travel reward credit cards. Of course, $400 is a good amount to attract people. But the question you need to ask yourself is; “Can I spend $2,500 on purchase just within 90 days?”. If you only spend $2,450 within this period, you are still not qualified for the reward.
- Rewards may expire: Some reward credit cards companies will compel their customers to redeem their rewards within a particular timeframe. If the reward is not redeemed within the period, such reward will expire. Imagine you qualify for the $400 reward as illustrated in the example of travel points reward above, you may lose it if there is a condition that you should use it within a specific period and you don’t use it. On the other hand, will you embark on a trip that you don’t plan for just because you earned a reward?
- High annual fee: Have you ever pondered on how these rewards credit cards companies make their money back? One of the avenues through which they make their money is annual fee. The annual fees on rewards credit cards are usually higher than that of regular cards. Some card company may offer $0 intro annual fee for the first year. That does not mean you will not be paying annual fee on such card. At the end of the intro period, you will begin to pay.
- Hefty interest rates: The best way to take advantage of rewards credit cards is to ensure that you make full payment of the card balance at the end of each month. Interest rates on rewards credit cards range between 18 and 22 per cent. If you can’t afford to pay off your balance every month, rewards credit cards may not be appropriate for you.
- Rewards credit cards require consistency. You are not expected to fall behind on your card payment. Late payments can cancel all the points you must have accumulated over time. Direct charge back on your account may be a good way of ensuring you don’t fall back on your payment.
- Terms and condition may change without warning: This is the trickiest aspect of rewards credit cards. They may change their terms. So, it is your responsibility to ensure that you are up to date about the terms guiding the rewards credit card you use.
- It can lead to overspending: In an attempt to meet the minimum threshold required to qualify for the rewards, you can be tempted to overshoot your budget. At the end of the month, you may not be able to pay off your balance. This may either cancel the reward or you end up paying hefty interest rate. In fact, rewards credit cards can be a debt trap in disguise for people who cannot manage their finance.
In conclusion, it is important that you do your homework properly before applying for rewards credit cards. Study their features to determine which one will actually suit you. Read their terms and conditions to see if there is anything which may make it difficult to qualify for the reward. Also, find out if the reward will expire or not. In all, do the cost benefits analysis of the rewards credit cards. If the costs are higher than the benefits, there is need applying for such rewards credit cards. At the end, you may even realise that regular credit cards are okay for you. Don’t acquire a card that you will not be able to manage responsibly.