[Update: Some offers mentioned below have expired. You can view the current offers from our partners here — United Airlines Explorer card from Chase. Disclosure: Cards from our partners are mentioned below.]
Rewards credit cards can sound like a great deal. First, there are the generous sign-up bonuses that can be worth hundreds of dollars. Next come the valuable points, miles and cash back that cardholders earn from their spending. Finally, there are the great perks that come with the top rewards credit cards.
But like so many things, the reality of rewards credit cards can be entirely different than what people expect. So here are five times that rewards credit cards actually work against cardholders.
1. When Cardholders Carry a Balance
More than half of all American credit card users carry a balance on their cards every month. The interest they pay will cost more than their rewards are worth, so their reward cards are actually working against them. Furthermore, rewards credit cards will have a higher interest rate than non-reward cards, so those who carry a balance should forget about rewards and focus on finding the lowest interest rates.
2. When Rewards Are Impossible to Redeem
Rewards credit card users are often tempted by offers of a “free flight” or an award night in a nice hotel. After dutifully earning the necessary points or miles, they are often confronted by problems when they try to claim their rewards. In many cases, airlines allocate barely any award seats at the lowest mileage levels, the ones they advertise as the basis for a free flight. In other cases, airlines and hotels change their award charts so as to require vastly more points or miles for the same award. Make sure you read the fine print of the rewards program when you apply for one of these cards to prevent a major frustration down the road.
3. When Benefits Are Unusable
Rewards credit cards often come with several types of travel insurance and purchase protection benefits, and each of those has several pages of limitations and exclusions. For example, the travel interruption offered with the United Airlines Explorer card from Chase covers delays and cancellations from weather, but not from air traffic control. In other instances, purchase protection policies can excludes large categories of purchases such as jewelry, cosmetics and anything that is used with a motor vehicle.
4. When Annual Fees Eat Up the Value of Rewards
The best reward cards have annual fees that can be as little as $50 or as much as $500. Yet many cardholders don’t take the time to consider if the annual fee is worth the rewards and benefits. And even when a cardholder seems to realize enough value from the card to justify the fee, rewards credit card users should actually consider whether they received enough additional benefits beyond those offered by a no-fee rewards card.
5. When Cardholders Overspend to Earn Rewards
The principal way that rewards cards can work against cardholders is by giving them the incentive to spend more money. Simply put, a rewards card will always reward customers for spending more, and it should not come as a surprise that some people subconsciously make unnecessary purchases in order to earn rewards. And of course, if you overspend so much that you carry a balance (see #1), you further negate the rewards.
If you spend more than you can pay back, you run the risk of carrying a high balance over time. And a high balance on your credit cards will affect your credit scores, even if you’re paying off your bill in full every month. If you want to know how your credit cards are affecting your credit scores, Credit.com allows you to check two of your credit scores for free every month, plus get an overview what’s having an impact on them, along with a plan to build your credit.
At publishing time, the United Airlines Explorer card from Chase is offered through Credit.com product pages, and Credit.com may be compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment.
Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.
More on Credit Cards:
- The Credit.com Credit Card Learning Center
- How to Lower Your Credit Card Interest Rates
- 6 Smart Credit Card Strategies