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Rewards cards have become the latest rage in the credit card
industry. In the past, consumers shopped for credit cards that
offered the lowest interest rate. Next came cards with low
interest rates and no annual fees. Today, consumers can shop for
cards based on what type of “reward” they can earn for using a
specific issuer’s card.
How does a reward program work? Typically, the program awards
points, "dollars" or a cash value based on the amount you
charge. The rate at which you collect points varies depending on
what you charge or where you charge it. Some programs offer
extra points for using their card at a specific place such as a
supermarket or fast food restaurant or for certain items.
Some programs offer a variety of rewards. Consumers can earn
meals, tickets to sporting events, airline tickets, electronics,
or even create their own reward program.
The goal is to get you the consumer to use your credit card as
much as possible. Why? FEES! The credit card issuer makes money
from two sources each time you use their card. First, from the
merchant who pays the issuer a merchant transaction fee and
secondly, from you through finance charges and late fees.
A recent survey found that nearly half of U.S. cardholders
enrolled in a credit card rewards program have never redeemed
their points. However, 60% of consumers said rewards program
influences their decision when deciding which credit card to use
for a purchase.
When considering an offer for a card that offers rewards, be
sure to read the fine print. Find out what you have to do to
earn points. Look carefully for any restrictions as to when you
can redeem them. Also check to see if your points carry over
from one year to the next.
Reward programs most benefit those who pay off their balances
monthly. For those who carry a balance or even pay late, the
resulting higher balances and fees aren’t really much of a
reward, are they?
About the author:
© 2005, http://www.yourfreecreditreportnow.com Author: James H.
Dimmitt James is editor of “To Your Credit” a FREE weekly
newsletter focusing on managing your personal finances and
credit. Subscribe and get a FREE copy of your credit report when
you visit: http://www.yourfreecreditreportnow.com
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