Avoid rewards credit card pitfalls

The perks are great, but don't be foolish chasing them

By Jeremy Simon

Though reward credit cards offer impressive perks, consumers who are not careful with their plastic can end up with less than they  expect.

One of the main dangers posed when using a rewards credit card is the cost. Rewards cards frequently charge higher interest rates and annual fees than other credit cards in order to offset the cost of the rewards program. These added costs can outweigh the program benefits.

For example, consumers who are charged a 14 percent interest rate for revolving a balance on a rewards credit card that yields 1 percent cash back would end up offsetting that benefit. Separately, a late payment can result in the loss of rewards points earned during the prior month. Also, if the credit card charges an annual fee, that cost may cancel out some of the rewards earned each year.

To make sure they come out ahead, cardholders should make sure to pay their rewards credit card balance in full each month before the due date. Also, cardholders who do not use their rewards credit card much would be better off choosing plastic with no annual fee.

Meanwhile, terms for a rewards credit card may be less generous than they first appear. Perks that seem dazzling on promotional material may actually be offset by restrictions buried in fine print.

Additionally, even the best reward terms can change. Experts note that banks can choose to lower rewards or allow a credit card to expire altogether if its perks end up being too costly for the issuer. Also, if the card company changes ownership, consumers could experience a change in reward terms.

To avoid such unpleasant surprises, cardholders should read all the material available on their credit cards and continue monitor mailings from the issuer, whichh may include updates to reward terms. By redeeming their rewards as soon as possible, consumers can avoid having their perks diminish or vanish if terms change.

Finally, cardholders need to learn if their rewards credit cards have caps on the amount of points that can be earned in a month or year. Reward points can expire if they are not redeemed or if the credit card is not used.

Updated: March 29, 2008

	Three most recent Reward programs, cash back cards stories: Black, white, titanium: Are elite credit cards worth it? – If your credit rating is outstanding, you earn big and spend big, you could win an elite credit card, which provides premium benefits -- at extreme cost ... Credit card issuers shift rewards to 'platforms' – Credit card issuers are increasingly consolidating their rewards programs to allow points shopping across categories for numerous cards ... Do credit card rewards make people spend more? – Study: The allure of credit card rewards is one contributing factor that may lead to increased card debt ...

	CreditCards.com's newsletter Did you like this story? Then sign up for CreditCards.com’s weekly e-newsletter for the latest news, advice, articles and tips. It's FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now!