Today’s credit market is very competitive, with many credit issuers making various types of credit cards available to borrowers. Creditors add rewards to credit cards to entice borrowers to open new accounts. Although credit card rewards don’t necessarily colour the card terms, the perks might influence a borrower who’s trying to decide on a new credit card.
Awards vary by creditor and including everything from airline miles to cash rebates. Free airline miles are determined by the amount of pounds the borrower charges; she trades in the miles for plane tickets and flying class upgrades. The creditor may restrict the airlines she’s allowed to use or the days she can fly using reward miles.
Some creditors have point systems. The borrower gains points under the creditor’s reward system based on the pounds charged to the card, and these points can be redeemed for merchandise and services from specific vendors. The point rewards might be online at the creditor’s website or a special website, or the borrower may receive a catalog to order from. Another reward is cash rebates or cash back. The creditor gives the borrower money back based on her purchase or paying habits. Some issuers reward borrowers who pay the balance in full each month, while others award a cash amount based on spending. The spending reward is usually calculated by multiplying a set percentage by borrower’s balance.
Credit card rewards can take the financial sting out of other fees a borrower may encounter, such as annual fees or a higher interest rate. Whether a reward card is right for a borrower depends on the card’s terms and her own habits. For example, an airline rewards card isn’t beneficial to a person who rarely travels on a plane. Point rewards might be very limited in selection, depending on the participating vendors.