Credit Card Rewards

However, sometimes people charge so much on their rewards credit card that they end up paying a large amount of money in interest and fees for their purchases. For these individuals, credit card rewards are not necessarily "free gifts."

Rewards Popularity

Twenty years ago, the term "credit card rewards program" was practically unknown. When competition gradually increased between credit card companies vying for new customers, some companies determined that if their cards provided some sort of additional benefit for cardholders - greater than a low interest rate - more people would sign up for new accounts. This strategy proved to be successful, and over time many companies adopted their own form of a credit card rewards program.

Specialized Rewards Programs

The basic principal behind credit card rewards program is that people are rewarded for each dollar they charge. For example, some companies offer one frequent flyer mile or a gift choice for every dollar charged to the card. Other programs offer cash back or gift certificates instead.

Ever since the concept of credit card rewards programs became popular, companies have been coming up with new and more specific programs that meet the needs and wants of their customers. For example, there is a credit card rewards program which rewards it's customer with lottery tickets (one ticket for every dollar charged to the card). This type of credit card is therefore attractive to people who love to play the lottery.

Reward Program Categories

While choices for specific credit card rewards program are numerous, most of the programs fall into one of three categories:

Cash Back: A rewards program that offers cash back based on a percentage of the total purchase price. The money due back to the customer can be accepted as cash or credit, donated to a charity of choice, deposited into another type of bank account, or even sent directly to a mortgage company to be applied against the principal owed on a home.

Theme Rewards: Credit cards with theme incentives allow the cardholder to choose a category that interests them. Over time, the cardholder can earn points that go into a "point bank." Once enough points are earned, the cardholder can cash in the points for a prize related to their chosen theme. For example, a person who likes to ski may earn points towards ski lift tickets, new ski clothing or equipment, or free lessons at a participating ski resort.

Basic Rewards: One of the original credit card rewards programs is providing a reward for every dollars charged to a card. The most well-known example of this is providing one frequent flier mile on a chosen airline for every dollar charged to a credit card. Once enough miles have accumulated, they can be traded for a round-trip airline ticket.

In Conclusion

Keep in mind that the best way to maximize the value of your rewards is to pay off your credit card balance each month. If you do not, you can feasibly end up spending more on fees and interest than you earned through the rewards program.

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