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10 things to know to maximize credit card rewards

April 08, 2016

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Credit card rewards

Credit card rewards programs are an no-lose situation, right? You receive cash, merchandise or travel just for using a particular credit card when you buy things. What could be bad about that?

The fact is, credit card rewards programs could work for you or against you, depending on how you use them.

Here are 10 things you should know to get the most out of credit card rewards programs:

1. Rewards come in different forms

Some rewards are for cash back, while others are for services or merchandise. The point is, it is not an apples-to-apples comparison. You have to decide how useful non-cash rewards would be to you before you can compare one program to another.

2. Percentages are the key

These programs tend to quantify rewards in points, which makes their value a little murky. The value of a single point might differ from one credit card to another, so don't assume that comparing points is an accurate way of deciding which rewards program is the most generous.

The percentage of your purchase amounts that you earned as rewards is the key to making those comparisons. You may have to figure out what cash value points have under different programs, and then calculate that value as a percentage of the spending required to earn those points.

3. Cash offers more flexibility

With cash, you could always purchase just about every other type of reward being offered, so unless rewards are particularly generous in some other form, cash rewards give you the most flexibility.

4. Other costs to consider

There are two sides of the equation to consider when you evaluate a rewards program: What you stand to gain, and what it might cost you.

The cost stems from two factors. First, different rewards credit cards charge different interest rates, so while you are evaluating a card's rewards program, you also have to consider whether it has a higher interest rate that is going to cost you extra.

The second cost factor is that generally speaking, rewards credit cards charge higher rates than non-rewards cards. So, besides comparing the rates and benefits of different rewards cards, you also have to consider whether you might be better off with a non-rewards card. You might find the extra interest of a rewards card costs you more than the rewards you earn. After all, rewards are earned once, when you spend the money. Interest charges continue for however long you carry an account balance.

5. Premium rewards may require taking action

If your card offers especially high rewards on special categories for a limited period of time, keep in mind you might have to register for these special reward periods. Ask yourself whether you are the type of person to keep up with and follow through with signing up.

6. Good credit can help earn premium rewards

Some premium rewards programs are available only to people with excellent credit, so consider that an added incentive to keep your credit in good shape.

7. Watch out for expiring rewards

Don't let reward balances accumulate for too long. Keep in mind that they may expire, or the card issuer may change its rewards policy.

8. Never let rewards be an excuse for increased spending

No matter how good a rewards program is, the rewards are only worth a small percentage of the money you spend. It makes sense to collect rewards on money you were going to spend anyway. But if earning rewards prompts you to spend more than you would otherwise, you are giving up more than you gain.

9. Loyalty should only go so far

Rewards are a form of loyalty program, meant to make people stick with their current credit card. That's all well and good, but don't let your current reward program deter you from periodically checking out other credit card offers. There might be something even better out there.

10. Base rewards on your needs and habits

Two different people might get very different things out of identical rewards programs, so your needs and habits should be a factor in which program you choose. Consider how much you might incur in interest charges by carrying a balance on your card, how likely you are to register for special offers, and whether you are the type of person that will regularly get around to using the rewards you've earned.

By all means, take advantage of credit card rewards programs, but shop carefully to make sure these programs don't end up taking advantage of you.

Comment: Which credit card rewards are your favorite: cash back, gift cards or another choice?

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