Let’s Take a Look at Reward Credit Cards

Lenders provide an incentive for credit card customers to continually spend with their credit cards. With the use of reward programs and schemes, lenders encourage card users to repeatedly use their cards for purchases in exchange for points which can later be exchanged to redeem rewards, once a specific amount has been accrued. The rewards that can be redeemed are based upon the individual reward program outline in the terms of the account. The number of points earned per dollar and the value of each point also varies between reward programs and lenders.

Of course, lenders earn revenue every time a purchase is made using their credit card. Therefore, rewards programs usually present a win-win situation for both the customer and lender. A fee is paid by the merchant to the lender following each transaction. In order to maximize this fee, lenders compete to offer the best rewards program to attract more customers and increase the number of transactions.

Types of reward programs

Just as there are numerous lenders, there is a wide variety of rewards programs available to credit card users. The most common are travel reward programs, cash back programs and merchandise programs. Many of these rewards programs are arranged in connection with Airline frequent flier programs and merchandise programs are partnered with popular stores. In addition to the primary rewards, many credit cards provide additional services, such as complimentary insurances and discounts on car rental services.

Are they for everyone?

Although most applicants are likely to be granted a rewards credit card, they are certainly not for everyone. Consumers who rarely use their credit cards should not opt for a rewards program card, nor should Australians who would solely use a credit card for emergencies. These consumers will find greater value in a low interest rate credit card or a no annual fee credit card. On the contrary, reward program credit cards accompany an annual fee (usually $100 or greater for a decent program) and a relatively high interest rate. Consumers who do not frequently swipe their credit card will not have the opportunity to accrue enough points to reap the benefits. Instead more funds will be applied to interest and fees by the time these customers can exchange the accrued points for rewards.

Reward credit cards benefit all lenders and some customers, particularly those who use their credit card frequently. Users must be sure to pay off their entire balance as quickly as possible, however, before the cost of high interest payments consume any reward redeemed.