Beware of "Gotchas" in Credit Card Reward Programs

On the surface many credit card reward programs seem like great deals. Unfortunately, there’s often a lot of red tape that can keep you from accumulating the rewards that are advertised. You must read through the reward program’s fine print to really understand what rewards you’ll receive and what you have to do to get them.

Purchase Specifications

Many higher percentage rewards are only given when you make certain types of purchases or when you use your credit card at certain types of stores. Otherwise, you’ll earn a lower percentage of rewards, if you earn any rewards at all. If you don’t typically shop that the stores required to earn the top rewards, consider choosing another rewards program.

Maximum Reward Amounts

There may be a limited amount of rewards you’re allowed to earn, either in a certain period of time, like a month or year, or the lifetime of the credit card. Credit card reward programs that let you earn an unlimited amount of rewards are usually better deals.

Expiration Dates

Watch out for credit card reward program expiration. Some or all of your rewards may expire if you don’t use them within a certain period of time. Once your rewards expire, they may be gone forever. Or, your credit card company could charge a fee to reinstate your rewards. Fortunately, some credit card rewards programs that don’t have expiration dates, allowing you to use your rewards indefinitely. Make sure you know whether you have a certain amount of time to use your rewards.

Redemption Restrictions

It’s not unusual for credit card rewards programs to specify redemption increments. For example, you may only be able to redeem cash rewards in $25 increments. Sometimes, you can only redeem cash as a credit to your account balance rather than receiving a check or gift card that you can actually spend. Reward restrictions could make it hard or less beneficial to use your rewards.

Reward Tiers

Reward tiers work like this for example: You can earn 5% cash back…but only after you’ve charged $5,000 on your credit card. Before that, you only earn 1% cash back. If you never spend the top tier amount on your credit card, you never get a chance to earn the highest level of rewards. Even if you manage to make the top tier, you’d have to spend well above the tier amount to earn a substantial reward.

High Cost of Rewards

Credit card reward programs nearly always come with an annual fee. If you don’t earn rewards above the annual fee, then those rewards are actually costing you. You’ll always pay a higher interest rate on credit card balances you carry on a rewards credit card. Pay your balance in full every month to lower your interest cost and look for a credit card with a low annual fee.

Excellent Credit Requirement

Rewards credit cards are only given to applicants with the best credit history. If your credit score is lower than 720, you’ll have a hard time finding a good credit card rewards programs. If it’s below 620, you’re likely to be denied for every rewards credit card you apply for. It may be a gift in disguise, though – rewards credit cards can easily cause you to accumulate a high credit card balance. If you’re working to improve your credit, the last thing you need is extra credit card debt.