Rewards Credit Card Gotchas to Avoid

By Havalah Gholdston
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Rewards credit cards offer an easy way to earn cash, points, or miles. And with many cards offering bonus cash for new card members, rewards cards have become the most popular choice when it comes to plastic. According to a recent study by The Federal Reserve Bank of Chicago, about 60 percent of consumers carry a rewards credit card. Consumers also report they would consider switching cards for better rewards, with cash back being the most tempting offer.

Enticing as rewards cards can be, there are some things to watch out for. Here are the top gotchas to avoid if you carry a rewards card.

Higher Interest Rates: The biggest gotcha in a rewards program is interest rate. The rates are typically higher than credit cards without a rewards program. If you carry a balance, your rewards can be wiped away by the monthly interest. To take full advantage of a rewards program, you have to pay your balance in full each month.

5% Cash Back Offers: A new trend in rewards cards is the 5% cash back credit card. While earning 5% cash back on a purchase is hard to beat, there are a few things to keep in mind. First, the 5% rewards apply only to certain categories of purchases, and these categories change every three months. Second, you typically have to log into the credit card issuer’s website and register for the new categories every time they change.

Annual Fees: While not every rewards card charges an annual fee, many do. The premium travel rewards credit cards generally do come with an annual fee, and some can amount to hundreds of dollars a year. So you’ll need to evaluate whether annual fees are worth the potential rewards. Many card issuers offer a free version of the same card that comes with fewer rewards, which is an option if you are looking to keep fees to a minimum.

Reward Limits: Not all rewards are unlimited. Almost all of the 5% cash back category rewards mentioned above have a limit on how much cash you can earn. And gas rewards credit cards typically cap the amount of cash that can be earned at the highest reward level.

Reward Tiers: Particularly with cash back cards, you may have to charge a certain amount to the card before earning the top reward. In some cases, you won’t earn the top reward until you’ve charged thousands of dollars to the card.

You Can Lose Your Rewards: One of the biggest gotchas of all is that your rewards can be taken away. If you cancel the card, make a late payment, exceed your credit limit or if the company changes their guidelines, you can lose some or all your rewards.

Frequent Flyer Constraints: One noticeable problem with frequent flier cards is the topic of award availability. It can be difficult to find seats on a flight for which you want to redeem your miles. Card companies have started to work around this issue by offering cards that are not affiliated with a specific airline. This allows cardholders to use their reward points to purchase seats on a flight, instead of ones reserved for frequent flier miles.

Slow Payment of Rewards: This is not an issue with all cards, but some cards make you wait for your rewards. The AmEx Blue Cash card, for example, makes you wait until you have been a card member for 13 months before you get your cash back reward. And then rewards are paid in the form of a statement credit annually.

You Need A Good Credit Score To Qualify: It’s no secret you need a good credit score to qualify for a rewards card. While credit card issuers do not disclose their underwriting requirements, a FICO credit score of 700 or more is likely a requirement for most reward cards.

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