What the credit card companies giveth, they're more than happy to taketh away. Those credit card reward programs that they dangled like so many carrots when you signed up for your cards are not always as tantalizing once you're on board. In the wake of declining profits and merchant fees, credit card companies are writing crafty terms and conditions on reward enticements, looking to pull the magic carpet out from under the feet of unwary consumers. If you want to maximize credit card rewards, you need to learn to be wary.
Beware: Mysteriously Shrinking Reward Point Values
Today's rewards points market raises flags among currency traders. Credit card companies are not required to maintain a fixed ratio for earning points based on the initial credit card contract. Don't assume that it's one-point-per-dollar on what you spend or borrow. In lieu of gifting round-trip tickets for a set number of points, one lender instead converted the reward to a dollar-value against travel vouchers. The net result--consumers could need to earn even more points to get a flight, or they could be charged the difference between the raised ticket cost and their dollar-value.
Caps on Rewards
Read the small print where your credit card issuer can set a limit on the rewards or points you can tally in any cycle. Lenders prefer to extend an initial high earnings ratio to bait new customers, all the while discouraging loyalists who pay off their balances and seek rewards.
Rewards Expiration Deadlines
While some lenders still offer rewards credit cards with points that never expire, many companies establish rolling expiration dates that take away your points if you don't accumulate enough for a reward in a given cycle. Even rewards have expiration dates. Don't use your rewards on time? Poof! They're gone!
Look Out for Thresholds
If you've ever had cash back credit cards, you most-likely know all about lender requirements that you spend a threshold amount on your card before you're eligible for rewards. Some provisions even require you to keep a certain balance or make a certain level of purchases each month to qualify for or redeem your points. You could be spending way more than the value of your perks.
Tiers and Fears
Based on how much you spend, your credit card company can cubby-hole you into a participant tier. Spend below your previous charge levels and you can drop to a tier where your points are harder to earn or are devalued. Change or lose jobs, spend less on your card, and down you go.
Hidden Charges and Processing Fees
In response to tighter restrictions on lending, credit card companies are actively searching for ways to recoup their profits. One way is to levy new fees or raise the ones they already charge. Just as you might encounter service or processing fees when you redeem your frequent flier points with an airline, you could suddenly find redemption fees from your credit card company. Consumers report having to pay from a few dollars when redeeming a gift card to more than a hundred dollars just to convert points to airline miles. Depending on your terms and conditions, you might prefer to pay upfront cash for rewards than accept high service charges for processing your hard-earned points.
The past practice by credit card companies of severely punishing consumers late on payments or for those who exceeded their line of credit has been moderated by federal credit card reform. But the terms of new legislation won't touch credit card company practices of voiding reward points for delinquent borrowers. A missed or late payment can make your points vanish into thin air--depending on the small print on your terms and conditions. Beware!
When it comes down to it, you're still responsible for your spending, your payments, and whether you see your perks as an entitlement. There's no reason to take on a reward program if it promotes reckless overspending just to get a free flight or hotel room. You're also responsible for going over all the terms, conditions, fee schedules, and interest provisions before signing up with any lender. Buy yourself a magnifying glass.