By Eileen Ambrose, The Baltimore Sun
November 13, 2011
Don't automatically shred those credit card offers arriving in your mailbox. They just might contain an attractive rewards program.
Card issuers grew stingy with rewards during the credit crunch and while they waited to see how much federal card reforms would hurt their bottom line, card experts say. But now that those matters are behind them, banks have been reviving rewards to make their cards stand out.
"They are back, and they are back with a vengeance," says Curtis Arnold, founder of CardRatings.com, a credit card comparison site.
Two-thirds of credit card offers in September featured a reward or rebate, according to Synovate, which tracks direct-mail solicitations. Though that's less than in June, rewards since that time have become more generous, says Synovate's Roy Persson.
Cards offer enough airline miles now that you can qualify for a round-trip ticket fairly quickly, or you can earn $100 to $200 cash back for meeting modest spending hurdles.
And issuers are expected to sweeten deals for the holidays to reel in consumers just when they are likely to do some serious charging. Discover, for instance, is promoting a cash-back card with a $150 holiday bonus to consumers who spend $1,000 in the first 90 days.
Of course, there's a catch. Rewards aren't back for everyone. Card companies are being highly selective and in pursuit of the same customer: the one with excellent credit.
These days, that's someone with a credit score of 750 or higher out of a possible 850 points.
Those with good credit — a score of 700 to 749 — also may qualify for some of these rewards cards, but at a higher interest rate.
Bill Hardekopf, chief executive of the card comparison website LowCards.com, says issuers are being so picky to limit their risk. It's one of their lessons from the recession. Before the economy tanked, card companies handed out plastic with generous limits even to those with shaky credit.
"When the downturn hit, people started defaulting," Hardekopf says. "Credit card issuers were left holding the bag."
But trying to attract the best customers isn't the only reason issuers are beefing up rewards. Card companies figure by offering such enticements, Hardekopf says, you're more likely to use a credit than a debit card.
New federal rules limit the fees banks can collect for processing debit card transactions for merchants. There is no such cap on credit cards, so banks earn more if you use that plastic. Plus, if you don't pay your balance off each month, issuers can collect interest.
Certainly, banks are making credit cards more appealing. If you're in the market for more plastic, online card comparison websites can help you narrow your search. Here are some other tips:
Get out the magnifying glass Make sure you read the fine print, and the print isn't any finer than in credit card agreements.
With Discover, for instance, you can earn up to 1 percent cash back on purchases, plus as much as 5 percent on certain categories. But you will never earn more than 0.25 percent on purchases at a warehouse retailer, says CardRatings' Arnold. If you often shop these stores, another reward card might be better.
The Chase Freedom Visa also awards 5 percent cash back on the first $1,500 of purchases made in select categories during a quarter.
But each quarter, the issuer switches the categories, says Beverly Harzog, a credit card expert for the card comparison site Credit.com. And you must enroll every three months for your purchases to get the 5 percent rebate, otherwise you will earn only 1 percent, she says.
Other cards have quarterly enrollments, too. Card issuers say they do this so customers remain engaged and become more familiar with how their card works, says CardRatings' Arnold. But he says it's just one more thing a busy consumer must remember — or forget.
If you do forget and are a good customer, Harzog says, contact the issuer and see if it will allow you to still qualify for the higher rebate.
Annual fees Cash-back cards usually don't charge an annual fee. But others that do, especially airline reward cards, are now waiving the annual fee for the first year.
If you are considering a card with a fee, do the math to determine if the benefits are worth the fee.
The Blue Sky Preferred from American Express assesses a $75 fee. But it also gives a $100 airline allowance that you can use to cover baggage and flight-change fees or meals on the plane, Harzog says. "Right there, you are still ahead $25," she says.
But the American Express Platinum charges a whopping $450 annual fee. Though the card has exceptional perks, such as a $200 annual airline allowance, you must be a heavy traveler who values these benefits to make the stiff fee worthwhile, Harzog says.
(Amazingly, the $450 fee isn't the highest. The fee for an American Express Centurion card, available by invitation only, is $2,500 a year. Imagine the rewards! You have to, because American Express doesn't disclose them to the uninvited.)
Cash vs. miles vs. points "With reward cards, it's not necessarily one-size-fits-all," Arnold says. "It depends on your spending habits and personal preferences."
Arnold says he favors cash programs because they're straightforward, and the average person tends to reap a bigger benefit with them.
There are exceptions, he adds, such as airline reward cards that waive fees and allow you to quickly earn a couple of round trips.
But points that can be used to purchase items can be complicated, Arnold says, and the merchandise is usually marked up. You would be better off many times earning a cash reward and using the money to buy the item for less at a store, he says.
Don't carry a balance If you don't pay off your credit cards in full each month, you need a card with the lowest possible interest rate — not a reward card.
Reward cards typically charge a higher rate of about 1 percentage point over cards without such perks, Arnold says. By rolling over a balance month to month, the interest you'll pay will wipe out any reward you earn.
Don't be late Some issuers won't pay rewards for the month if your payment is tardy. Or you can lose some or all of your rewards if you fall into arrears, Harzog says.
If you're struggling to pay a bill, says LowCards' Hardekopf, at least make the minimum payment on time so you don't lose rewards.
Maximize rewards If you shop online, check out whether the card company has partnerships with retailers. By accessing these retailers' through your card company's website, you might get a discount on merchandise, free shipping or extra cash back.
Best credit cards
Chase Freedom Visa: $200 bonus cash back after spending $500 in the first three months; 5 percent cash back on certain categories; 1 percent on all others. Ten percent cash back if you shop at selected merchants through Chase website. Annual percentage rate: 15.99 to 22.99, variable. Annual fee: none
Chase Sapphire Preferred: Earn 50,000 points, worth $625 toward air or hotel, after spending $3,000 in the first three months. Two points earned for every $1 spent on travel and dining; plus extra point if using Chase online booking. Annual fee: $95, waived the first year. APR: 15.24, variable. No foreign transaction fee.
Simmons First Visa Platinum: APR: 7.25 percent, variable. Annual fee: none. Perks include $1 million in travel accident insurance. Foreign transaction fee: 2.7 percent.
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