CHOOSE YOUR "REWARD" CARD CAREFULLY
Apr 10 '01
The Bottom Line If you like the convenience of credit cards, go a step further and choose a reward card that actually pays YOU back for being a loyal customer.
Having good credit can certainly have it's downfalls sometimes. In a typical week, I can count on receiving 2 or 3 credit card applications in my mailbox without fail. Most of them say "You are preapproved!" and offer a low introductory interest rate to entice me to apply. I always check the fine print as most of these "teaser" rates will go up several percentage points after the introductory period expires. These typically last anywhere from 3 to 6 months, even though in rare instances it can be as long as a year. If you carry a balance on your credit cards, then such offers can save you hundreds of dollars in interest if you don't mind switching cards again and transferring the balance once the interest rate on the card you applied for returns to normal.
There are literally hundreds of credit cards out there for consumers to choose from. And it's certainly not that difficult to be approved either unless you have really bad credit. Because of this increasingly competitive market, credit card companies have become more and more creative in finding ways to entice people to apply for a line of credit from THEM and not from one of the other banks that stuff your mailbox with applications.
So just what do many credit card companies do in hopes of getting consumers to open THEIR applications instead of junking them as most do with all the rest? In recent years, so-called "reward cards" have popped up all over the place and have become quite popular. Such cards offer consumers those little "extras" most standard cards do not. Why carry just a regular credit card when you can use one that will potentially GIVE you free "stuff" in return?
What exactly IS a reward card? Many credit card companies now offer consumers lots of incentives to choose certain cards over others. This can be anything from a percentage of your total charges paid back to you in CASH (cash back) to many other goods and services, such as free merchandise, free airfare, free gas, and even free CARS! The trick is finding the one that best suits YOUR needs and lifestyle. Who cares if one company offers you free airfare as an incentive to apply for their card when you rarely travel? Such a card would not be the one for you.
Since August of 1994, my husband and I have been card holders of Bank One's BP Visa card. ("BP" stands for British Petroleum, a major chain of gasoline distributors.) Every time my husband or I fill up our automobiles with fuel, we charge our purchase with our BP Visa card. When we get our statement each month, we ALWAYS pay the entire balance off so no finance charges will accrue. In return for being "loyal" customers as we rarely buy gasoline at any other gas station, BP "rewards" us by giving us FREE gasoline. They put 3 % of our total gasoline purchases towards our rebate. Every time our total adds up to $20, they send us a prepaid rebate card we can use the next time we fill up. Since 1994, we've earned $178.47 in free gas!! With gas prices continuing to rise the way they are these days with little relief in site, we can certainly use all the help we can get. Earning a "free" tank of gas every now and then feels pretty darn good!
So ultimately, Bank One (the owner of the BP Visa reward card) actually pays US to use their card! We are charged NO annual fee and because we pay the entire balance off every month, we never have to pay any finance charges either. All we pay is 34 cents a month for a first class stamp to mail our payment in with! And since I hate to carry large amounts of cash around on me (I feel rich if I have $20 in my pocket!), I never have to worry about having enough to pay for my gasoline when I need it. This convenience alone is worth 34 cents a month to me, and them some.
Because our BP card is also a Visa card as well, it is accepted by any merchant that accepts Visa. So this means we aren't limited to using our card ONLY at BP gas stations. We can purchase gasoline (or practically anything else) almost any place we choose to shop. In case of an emergency, we like having this option available, even though we typically use this card only for buying BP gasoline as any other purchases do NOT apply towards our prepaid rebate cards.
So would applying for such a reward card be of interest to you? I'd certainly recommend applying for one IF you meet ALL of the following criteria:
1. If you ALWAYS pay the full balance on your credit cards every month, then applying for a reward card would be a smart thing to do. But be aware that most reward cards DO charge a higher APR (annual percentage rate) than many of the other typical credit cards, so if you carry a balance every month, what you pay in interest will probably end up being more than any rebates earned. Our BP Visa card has an APR of 18.81%. That's rather high in today's market. But we never pay that as our balance is always paid in full when our statement arrives. If you MUST carry a balance, do so on another card with a lower interest rate and pay it off ASAP. A reward card would not be a good choice in this case.
2. Make sure the credit card you are applying for charges NO annual fee. Many of them do not charge such a fee anymore, but read the fine print to make sure the card you choose does not sneak one in on you a year of so down the road. If they DO charge an annual fee and you give them a call requesting that this fee be taken off your bill, often times they'll waive the fee just so that they won't lose your business to another company. And what if they say NO to your request? Then cancel your account and take your business elsewhere. With so many cards on the market to choose from that do NOT charge annual fees, you shouldn't have much trouble finding a new one that better suits your needs.
3. If you ALWAYS make it a habit to pay your bills on time, then a reward card would be a good choice also. Some companies charge hefty late fees if you miss a payment. And when that happens, interest is applied to your account as well. This can add up to substantial "hidden" charges. Of course credit card companies WANT their clients to carry a balance as large profits are a result when interest is collected. But be a smart consumer and make your credit card work for YOU. Let them actually pay YOU for the convenience of using their card.
4. Apply for a card that "rewards" you with products or services you will actually benefit from. Most everyone can use free gasoline (and of course CASH back!) these days. But there are other cards out there that offer less useful incentives (at least in my case anyway) such as free airfare or other travel assistance. If you rarely travel, then applying for such a card would not be very useful. There are other cards that offer free merchandise from select stores too, so if you are a frequent shopper at any of these, then such a card would be a wise choice. A few of the many companies that do this are: ToysRUs, JCPenney, AOL, Yahoo, Ebay, and even the Home Shopping Network. Do some research and find the one that will most benefit YOU.
In summary, be very careful in choosing the reward card that best fits your lifestyle. Always read the fine print and pay the balance off every month to reap the greatest benefits. Be a smart consumer and let your credit card actually pay YOU for a change.
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