For Americans with good credit, it’s a great time to earn rewards with plastic.
With the economy improving but consumers remaining tepid about spending, banks are getting more creative and more competitive with wooing and keeping customers. “If you’re not happy with the card you have now and its rewards, it’s a really good time to find deals on new cards,” says Matt Schulz, senior industry analyst with CreditCards.com.
Last year, 42 percent of those who changed credit cards did so for a better rewards program, according to a report by J.D. Power & Associates. That same report, however, found that many Americans don’t fully comprehend their credit card rewards. Of those surveyed, 62 percent said they didn’t completely understand their rewards, 43 percent said they don’t know if their rewards have a maximum limit, and 21 percent said they don’t know if they’re earning extra rewards for specific purchases.
Spending money on a credit card to get rewards – no matter how lucrative – only makes sense when you’re able to pay off all purchases and avoid racking up debt. Credit card rates are averaging around 13 percent, according to Bankrate.com.
Here’s what to look for:
1: Rewards are getting more flexible. Consumers have griped that credit card reward programs often have rigid rules about blackout dates or specific retail partners. “The latest rewards programs allow consumers to earn and redeem rewards in a really flexible way,” says Lindsay Konsko, a credit card analyst with NerdWallet.
The Discover It Miles Card, for example, allows consumers to earn rewards – in the form of a statement credit – that they can use for any type of travel purchase. Citi has started to let some customers transfer their Thank You points to certain frequent flier programs, Konsko says.
2: Cash back programs are getting more generous. Card companies know that good old cash back rewards are the top choice among wealthy (read: big spending) cardholders.
The industry standard for cash back is still 1 percent, but savvy card users can earn 2 percent or more. The Citi Double Cash card, for example, debuted last year and allows customers to earn 1 percent on purchases and another 1 percent for paying them off.
Other great cashback cards include the Capital One Quick Silver, which offers 1.5 percent cash back on everything. Several other cards promise customers 1 percent cash back, with up to 5 percent cash back on specific purchases throughout the year. That’s a great offer if you’re the kind of customer that will hold off on a purchase until you can get the greatest reward.
Just remember that most of those cards require you to opt-in to get the extra cash back. “It’s a bit gimmicky, but if you play the game and watch the categories, it takes two seconds to opt in, and it’s a cool way you maximize your rewards,” says Curtis Arnold, editor in chief of CardRatings.com.
3: Better introductory offers. In a bid to lure new customers, credit card issuers are sweetening the terms they offer first-timers. Initial cash bonuses increased 7.45 percent over last year, and miles-based offers increased more than 10 percent, according to the CardHub 2015 Credit Landscape Report.
They’re also continuing to offer lengthy 0 percent balance transfers to people for signing up by lengthening the period of 0 percent interest that they offer. “You’re not earning points or miles there, but the savings on interest can be their own reward,” Konsko says.
4: Free credit scores are pretty common. As Americans become increasingly aware of the importance of a good credit score, several companies are now letting customers see their credit score for free either on a monthly basis or at any time by logging onto the bank’s web site or app. “The fact that these cards are regularly giving away your actual FICO score for free is a big deal for consumers,” Schulz says.
5: Store-brand cards continue to lag. It can be tempting to sign up for your favorite retailers’ credit card, especially when you’re offered a 20 percent or more discount at the register. “Those cards are more lenient in terms of who they will accept application-wise, and that’s why the rewards are not the best,” Gonzalez says.
Store cards tend to have higher interest rates and lower limits, so one big shopping spree could throw your credit-utilization ratio out of whack and hurt your credit score.
6: It’s all about the experience. As more consumers look to spend their money on experiences rather than things, card companies are answering the call with rewards programs that provide exclusive access to things like concerts and sporting events.
7: Apps can help. Most of the major cards have their own apps that allow you to track and redeem rewards in real-time. If you need help managing more than one rewards card, check out a third-party app such as AwardWallet.com, which tracks rewards and notifies you before the expire, and Wallaby, which tells you before you make a purchase which of your cards offers the most lucrative reward.
Top Reads from The Fiscal Times: