How Rewarding are Credit Card Rewards Programs?

The first credit card that could be used at a variety of merchants (as opposed to a store specific credit line) was actually a result of a man’s embarrassment! Frank McNamara had a business meeting at a restaurant and when it came time to pay the bill, realized he had left his wallet at home. He had to ask his wife to bring the wallet to the restaurant so he could pay the bill, but the result of this embarrassing situation was the invention of a credit card that could be used at a wide variety of retailers. Mr. McNamara started “The Diner’s Card” in 1950, with about 200 cardholders. Within just a few years, private lenders and banks began offering credit cards as we know them today.

Credit Card Competition

As the popularity of using credit cards to pay for purchases grew, so did the number of credit cards to choose from. Before long, credit card companies were facing strong competition , and needed to find new ways to make consumers want their card over the competitors card offer. Credit card reward programs began in 1986, by Discover Card. They were the first card to offer a cash back program based on the amount of money you purchased using your card. Continental Airlines was the first airline to offer what is currently known as “frequent flier miles” - and consumers wanted these rewards so much that most of the other airlines soon followed suit with their own airline offers. Some rewards programs feature discounted or complimentary airfare, as well as bring a companion for free offers.

An Abundance of Cards

Almost every credit card company has a rewards program available, so once again- companies are looking for more ways to set themselves apart from the competition. In a time when it seems like every American consumer have more credit cards than their wallets can fit , companies are forced to offer better rewards programs and options to get customers to use their card more than the competitors card. When interest rates rise, credit card companies start improving their rewards programs. They use special marketing techniques that downplay the interest rates and sell consumers on the quality rewards program of the card.

The Unsuspecting Rewards Program

At first glance, rewards programs can look very beneficial. It sounds great to earn 2% cash back on all of your purchases, but if you’re paying $100 a year in annual fees, and only using the card for a few purchases a year- you’re not going to make even the annual fee back in the 2% cash back program. Also- there are usually surprises that are not very clearly displayed regarding rewards programs. Most have a ceiling to the amount of rewards you can obtain, which means once you reach that limit you are not eligible for the benefits of the rewards program any longer. On rewards programs that offer free products or points to buy products with, keep in mind you are probably going to pay shipping and handling on the free items.