[Update: Some offers mentioned below have expired. For current terms and conditions, please see card agreements. Disclosure: Cards from our partners are mentioned below.]
If you have excellent credit, you’re no doubt receiving tons of offers for rewards credit cards. And because there’s so much competition among credit card issuers, the bonuses and perks are getting sweeter by the day.
It’s certainly a great time to get a rewards card if you’re in the market for one. But don’t get too dazzled by the offers. Take your time, research the offers and compare rewards cards. Yes, this involves reading the very dull fine print, but it also includes paying attention to certain aspects of the terms and conditions.
It’s easy to miss things when you’re reading disclosure statements dripping in legalese. Even savvy consumers fall prey to some of these traps.
Trap #1: Picking the Wrong Type of Rewards Card
This happens to a lot of us. You see an offer with a good APR and a to-die-for bonus and you jump at it. But if you have a gas rebate card and what you really need is a card that gives airline miles, then you’ve got a rewards card that you can’t take advantage of.
By “take advantage of,” I mean use the card to make a profit. You have to match the rewards to your lifestyle. You fly a lot on Delta? Look at Delta-branded airline cards that give generous miles. You’re a gourmet chef and you spend a lot on groceries? Look at cash back cards. Once you pick the reward that meets your needs, you’re ready to choose a rewards credit card.
Trap #2: Seeing the Bonus Offer and Not Noticing the Spending Requirements
The Chase Sapphire Card offers 25,000 bonus points to new cardholders. That’s worth $250 toward an airline ticket, which is pretty awesome. But you have to spend $3,000 within the first three months to get this bonus. If you travel a lot or have a big purchase that you need to buy anyway, that might not be a problem.
Sometimes there’s an asterisk next to the bonus amount and if you follow it to the bottom of the page, you’ll see what the spending requirements are. But sometimes, there’s no asterisk even when there really are requirements. You have to find the fine print related to the bonus offer so you know what you need to do to earn it. There are a few offers that give you the bonus for your first purchase with no strings attached, but most of these bonuses do have strings.
Trap #3: Looking Only at the Zero Percent Intro APR and Not the Go-To Rate
Everyone loves seeing all zeroes when it comes to APRs. But don’t forget to notice what your eventual rate will be. If your future holds a 19.9 percent variable APR, then a zero percent APR for 12 months doesn’t seem like such a good deal after all. A related issue is not thinking about the cost of the annual fee when the first year is waived, which is a recent trend with airline cards.
Trap #4: Not Reading All the Fine Print Related to the Rewards Program
One thing I like about Discover is that the issuer makes it easy to read about the rewards. The details are generally listed below the box that shows the APR, balance transfer fees and so forth. Capital One makes it pretty easy, too.
But some issuers have the details of its rewards programs on a website other than the card’s home page. Often, you’ll see a note that says you can get more details at their rewards site. Sometimes, you don’t get the link. Here’s what I do when I’m reviewing rewards cards. I Google the card name and something like “rewards program” and see what pops up. I want to make sure I look at everything that explains the rewards program. I’ve actually had to go to multiple sites on occasion to make sure I got the whole scoop.
You want to make sure you read everything because you could find nuggets like, “If your card is inactive for 12 months, you’ll lose your rewards.” The details also make it easier for you to fully take advantage of your card. There might be airline and hotel partners you should know about or flexible options for redeeming your points or miles.
Trap #5: Not Understanding What Your Points Are Worth
It doesn’t matter if you get 5 points for every dollar spent if you get robbed when you try to redeem the points. The standard with rewards is that one cent equals one point. So 10,000 bonus points should equal $100. If you’re considering a card that requires 20,000 bonus points for a $100 gift card, keep looking for a new card.
Point value isn’t always easy to calculate because some “hybrid” cards offer cash, gift cards, travel rewards and more. So your points might be worth more when you redeem them for a gift card and less when you use them for an airline ticket. Or even the other way around. Just another reason to read the program details so you have a clear picture of what each point or mile is worth for the type of reward you’re most likely to want.
Trap #6: Not Realizing There Are Caps or Spending Tiers
Some cards give you great rewards up to a certain amount. For instance, cards that offer quarterly rotating categories might offer 5 percent cash back on purchases up to $800.
Or sometimes, you’ll see a card that requires you to meet a spending tier before you get the higher percent on cash back rewards. For instance, you might get only 1 percent until you spend $3,000 and once you reach that total, you get 3 percent cash back. Again, this is all in the fine print and you can’t adequately judge the value of a card without knowing about this stuff.
Trap #7: Not Redeeming Your Rewards
For those of you who are hard-core rewards fanatics, it might be hard to believe that this actually happens. But a study from Colloquy and Swift Exchange showed that the average household failed to redeem a third of their rewards, which came to around $205. Now, that’s not the way to take advantage of your rewards card. Keep track of them and use them. That’s why you got a rewards card in the first place, right?