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New credit card offers are again streaming into consumers’ mailboxes and inboxes, and many proffer something extra to help sweeten the pot. It could be tens of thousands of extra airline miles, gift cards, merchandise discounts or hefty checks.
For consumers in good financial standing, “some of the incentives are so attractive, they might as well apply for the card,” says Andrew Davidson, senior vice president at the research firm Mintel Comperemedia.
One of the most impressive Davidson says he’s seen is a Chase Freedom card offering $300 cash back if someone spends $500 in three months. And the Citi Forward card doesn’t just reward signing up, it rewards good payment behavior. Its rewards include up to 6,000 ThankYou points for making $600 in purchases and signing up for paperless statements, and another 1,200 bonus points for paying your bill on time and staying under your credit limit.
Card issuers are “looking for ways to stand out” because so many consumers already have some of the best rewards credit cards. “They’re sort of like the plain vanilla in credit cards,” Davidson says.
After curtailing credit card offers during the depths of the recession, along with slashing credit lines and even rescinding credit cards, the competition is heating up again. During the first quarter of 2011, more than 1.4 billion offers were sent to consumers, compared to about 825,000 just a year before, Mintel Comperemedia research found.
Optimism fueling incentives
While Davidson doubts the number of credit card offers will return to pre-recession levels of 2.2 million annually, “there’s a sense of optimism we’re starting to see throughout the industry.”
Almost 60 percent of credit card offers made during the past quarter had an additional incentive, such as bonus miles, gift cards and cash back rewards, up from just 30 percent in 2007, he says.
“Consumers expect this now,” says Kelly Hlavinka, managing partner at Colloquy, a company focused on the loyalty marketing industry. “They expect a little extra for pulling a card out of their wallet.”
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“The real battle is for ‘top-of-the-wallet’ status,” Hlavinka says. Many consumers carry a Visa, a MasterCard and an American Express , and they decide which to use most frequently based on which one offers the best rewards.
If a particular card has a great rewards program, “it behooves consumers to consolidate their spending” on that credit card, she says, because the rewards add up faster, and consumers are less likely to forget about their perks or let rewards expire.
As loyalty programs grow, consumers fail to cash in
Despite the demand for these “extras,” it’s not unusual for consumers to fail to cash in on the rewards they’ve accrued, a recent study by Colloquy found.
The study looked at both credit card perks as well as store loyalty programs, such as those offered by grocery stores, drug stores and other retailers.
It found that Americans chalk up about $48 billion worth of rewards points and miles each year, but about one-third of those go unredeemed. That’s equivalent to every household leaving $205 lying on the table.
Hlavinka says that happens for several reasons.
- Consumers simply forget about their rewards. The average household is enrolled in 18 rewards programs but actively participates in only eight.
- Rewards don’t add up fast enough. That may push consumers to focus on using just one or two credit cards.
- Consumers don’t visit a particular store often enough. A person may let points expire, or they may forfeit points simply because they haven’t shopped at a particular retailer for a certain amount of time, Hlavinka says.
Karen Carlson, director of education for InCharge Debt Solutions, a nonprofit consumer credit counseling service, advises consumers to shop around if they’re in the market for a credit card and not just consider whatever offers wind up in their mailbox.
These days, more than half the offers being sent out come from Chase, Citi and American Express, Davidson says, and the bulk of the offers are being sent to the most creditworthy consumers.
Consumers expect this now. They expect a little extra for pulling a card out of their wallet.
|— Kelly Hlavinka |
Managing partner, Colloquy
Sign-on bonuses mask fees and terms
Before consumers jump on credit card sign-up bonuses, it’s imperative that they read all the terms and conditions that accompany the credit card they’re considering, says Josh Frank, senior researcher at the Center for Responsible Lending.
For card issuers, “it’s often easier to compete on these kinds of peripheral promotions than on the core price” of the card, Frank says.
Instead, credit card providers are banking on consumers carrying a balance, making late payments and doing other behaviors that will earn the issuer money, he says.
Carlson cautions consumers to “know yourself, your habits and your behaviors” before applying for a new credit card. Consumers should only consider applying for a card if they haven’t had any late payments and if they’ve paid off their balances in full for the past year.
Consumers also need to keep in mind that applying for new credit cards impacts their credit score. So someone looking for a new mortgage “probably doesn’t want their credit report reflecting that they just applied for 10 new credit cards,” she says.
|REWARD CARDS’ SIGN-UP BONUSES GET CREATIVE, GENEROUS|
|Chase Freedom Visa||$300 cash back after making $500 in purchases, plus 1 percent cash back on all purchases, and 5 percent cash back on particular merchant categories each quarter|
|Chase British Airways Signature Visa||50,000 bonus miles after your first purchase with the card and an additional 50,000 miles after spending $2,500 in the first three months. Plus miles for purchases and no foreign transaction fees|
|American Express Gold Delta SkyMiles||20,000 bonus miles for your first purchase. Free checked bag for up to nine people in your party. No annual fee for a year|
|Citi Forward Card|
Up to 6,000 ThankYou points for making $600 in purchases and signing up for paperless statements. 1,200 bonus points for paying your bill on time and staying under your credit limit. Reduction in APR when you make a purchase, stay under your credit limit and pay on time three consecutive billing periods
|Walmart Discover||Spend $100 online the day you open your account and get a $20 cash rebate. Save 5 cents per gallon at Walmart gas stations and earn up to 1 percent cash back on all purchases|
|Chase Amazon.com Rewards Visa||Receive a $40 gift card when your credit card is approved. Earn 3 points for Amazon.com purchases; 2 points for gasoline, restaurant and drug store purchases; 1 point for all other purchases|
|Lowe’s||5 percent off Lowe’s purchases. No interest on purchases above $299 if paid in full within six months.|
|ExxonMobil MasterCard||15 cents per gallon rebates on gasoline purchases at Exxon and Mobil stations. Up to 2 percent rebates on your first $10,000 spent on other purchases, and 1 percent rebates on purchases above $10,000.|
|Source: CreditCards.com survey of major card issuers’ rewards cards, May 2011|