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As banks trim rewards, how can you still get the most out of credit cards?

Review experts’ advice on how to mitigate the loss

Summary

Banks are losing money on generous rewards and bonus programs. How can you still get the most out of cards as banks cut back on rewards and other perks? Read experts’ advice.

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Generous credit card rewards programs have become a serious problem for big banks.

Competition between credit card issuers drove sign-up bonuses higher as they fought for consumer attention. Although higher bonuses drove sign-ups, it had a negative effect on issuers’ bottom-lines as customers became more expensive to acquire.

At the same time, many cardholders took advantage of the trend and have been gaming the system by spending the exact amount necessary to earn sign-up bonuses, then not using the cards again or canceling them – a practice known as card churning.

And that has resulted in large banks facing rising costs associated with credit cards and cutting back on reward offers and other perks in response.

The trimming of rewards programs is bad news for consumers, yes. But there might be a way to mitigate the situation.

Read on to find out what experts suggest you do when banks take away credit card rewards and perks cardholders have come to love.

See related:  Best rewards credit cards of 2019

Research is the key

David Bakke, consumer expert at Money Crashers, agrees credit card issuers have figured out that consumers have become more educated on how to game the system to leverage better rewards – without incurring additional costs.

And the institutions are reacting to it, so you should expect some changes that could affect you in a significant way if you’ve been taking advantage of these programs, Bakke said.

But, he added, there are ways to mitigate the damage.

To begin with, keep all of your credit cards open – even the unused ones – and use them at least to a minor extent, he suggested.

Why?

Generally speaking, when changes are made to rewards programs, current cardholders are grandfathered in, Bakke pointed out.

“If you have a dormant credit card with a solid cash back or other rewards benefit, put a few purchases on it each month and pay off the balance – and consider making it your card of choice if it makes sense,” Bakke said.

And because attractive sign-up bonuses might be few and far between in 2019, he said, any time you see one that fits your spending needs, get on board and meet the requirements.

Just make sure you can meet the minimum spend requirements for any cards you open.

And be aware that signing up for too many cards at once can ding your credit score. Each new card application will trigger a hard inquiry on your credit report, and opening too many cards could hurt you under FICO’s new credit scoring factor. 

In addition, if you find out about a card partnership do what you need to do to secure the rewards, he recommended.

For example, when Chase and Amazon partnered, cardholders received benefits such as being able to shop with Chase Ultimate Rewards points on Amazon and up to 5 percent cash back on Amazon purchases.

Also, keep in mind that some credit card issuers have more recently been offering rewards and cash back or bonus points for mobile payments.

“So if that’s the case, go that route to continue to gain the benefits of cash back cards, even if it is in a different manner,” Bakke said.

Research is the key to finding the right card in this changing environment, he added.

Vote with your business

Simply put, if banks are losing money on a credit card program, cardmembers are likely to see negative changes in the card features, Jason Reposa, CEO and co-founder of MyBankTracker.com, said.

In the case of the popular Chase Sapphire Reserve, we’ve already seen tweaks to the credit card program, he said.

Chase Sapphire Reserve cardholders no longer earn bonus points on travel purchases that qualify for the $300 travel credit, can now only bring up to two guests to airport lounges (previously, there was no limit), and don’t have price protection on purchases anymore.

Furthermore, banks have lowered their sign-up bonuses after having locked in the initial wave of card applicants, Reposa noted. Chase cut the Sapphire Reserve’s sign-up bonus from 100,000 points to 50,000 points just a few months after it was launched, for instance.

Luckily, these premium travel rewards credit cards remain quite attractive to consumers who will enjoy the ongoing benefits of keeping these cards.

And although some people have gamed the system for sign-up bonuses, Reposa feels the percentage is actually very small.

He said banks locked in many high spenders with premium rewards travel credit cards, which helped them earn plenty of revenue through merchant transaction fees.

There are also those cardmembers who pay high annual fees, but don’t make great use of the card benefits, putting easy money in banks’ pockets, he added.

That said, some consumers have made travel-hacking for free with credit card bonuses a habit, as well as getting additional bonuses for referring others to credit cards.

In response to the cutbacks on credit card rewards programs, Reposa said, consumers can simply vote with their business – by not signing up for the cards or closing their accounts.

Reposa feels this may cause card issuers to tweak programs again to attract customers.

See related:  Credit card trends to watch for in 2019

Work the best program

William Bradley is a credit analyst and author of the credit resource website Credit Score Maestro.

He said rewards programs are best suited for those who travel for work, use the card for their own company or spend a lot each month.

When credit card companies capture these types of consumers, it’s a win-win, he added.

When your spending is spread over multiple cards, however, you are taking away the full benefit of the one that you need to focus on, according to Bradley.

Bradley advises consumers to take the best program and work it. And use that credit card anytime you can.

You can hold onto the other rewards cards if you have them, just keep a balance of less than 10 percent – a zero balance is even better.

For any card you use minimally, contact the bank and ask if it can be changed to a different card with no annual fee. That way, you will be able to keep your credit history active and in good standing.

This, in turn, will enable you to keep an eye out in case the bank changes its program in a year or two, and you won’t have to “start over” with that bank.

Focus on the awards program that you have been working for the year, Bradley advised.

“At the end of the year, look at your other card companies and see if they have put together a better program – if not, keep, working what you have been,” Bradley said.

“If there’s a better deal, move the better card into first position and work that card for the next year.”

Be more selective

Banks’ rewards programs may not be as generous as before, so in 2019 you’ll likely pay a higher annual fee and experience higher spending limits before a bonus kicks in, Marshall Armond, CEO of CreditRevo, said.

You’ll have to be more selective in the types of rewards cards you choose and also keep track of the cards you sign up for because many will have an annual fee, Armond said.

If you’re not using the card, keeping it active and paying an annual fee does not make financial sense, he pointed out.

For 2019, it’s all about selecting a credit card that offers the rewards you’ll really use, Armond said.

For example, if you have no need for airline miles or travel rewards, then you shouldn’t select a card that rewards you in points geared toward airline fares and hotels.

The other way to mitigate the impact of bonus programs getting smaller is on the spending end, according to Armond.

Many bonus offers involve a spending minimum you have to reach before the bonuses kick in.

“Instead of buying things you don’t need to reach the spending minimum, use the credit card to pay monthly bills, such as your utilities, internet and cellphone service payments,” Armond suggested.

Brace yourself

There are many ways you can prepare for low-to-no sign-up bonuses and waning rewards programs in 2019.

Do your research and don’t close cards that might bring back premium offers in the future – or, if you feel like you want to “vote with your business,” close those cards. (Just keep in mind that closing a card account can lower your credit score by increasing your credit utilization and lowering your average age of accounts.)

Consider making mobile payments for extra points.

Choose a card that offers rewards you’ll really utilize.

Whatever you do, work the best program that’s available to you to ensure you maximize whatever rewards and bonus programs big banks offer in the coming year.

What’s up next?

In Rewards

Should I apply for a bunch of credit cards to get the best offer?

Multiple credit card inquiries can bring your score down fairly drastically in short order, especially if you don’t have decades of credit history on your report. It’s better to find the best card for your needs, and apply for that one. If you want to add one or two more cards later, wait a few months.

Published: April 4, 2019

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Credit Card Rate Report Updated: June 19th, 2019
Business
15.61%
Airline
17.54%
Cash Back
17.68%
Reward
17.57%
Student
17.79%

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