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After a year of tightening credit card terms, lucrative credit card offers may appear to have become all but extinct. However, it turns out that one part of the changing market dynamics of credit cards is working in consumers’ favor. Not only are rewards credit cards still offering attractive deals for people with good credit, the rewards are actually getting sweeter.
Card issuers have gotten more cautious with credit card lending to consumers with less than perfect credit, and as a result, the competition for the best customers (read: those with excellent credit scores) has been heating up. Rewards credit cards appear to be at the forefront of the competitive battle.
JPMorgan Chase & Co. recently boosted earnings on British Airways credit cards from 1 mile per $1 to 1.25 miles per dollar spent and also upped earnings on its Marriott rewards credit cards. Citigroup likewise offers select cardholders a 20 percent increase on American Airline earnings on its Aadvantage cards, from 1 mile to 1.2 miles for every dollar charged. Capital One offers a generous 1.25 miles per dollar on its Venture One rewards credit cards, redeemable for airline tickets, hotel rooms, car rentals and more.
Unfortunately, the rebound in credit card rewards so far does not extend to 0% APR balance transfer offers. While you can still get a 0 percent balance transfer, expect to pay 3-5 percent balance transfer fee for the pleasure.
Why are card issuers upping the ante on rewards programs? Card issuers have been burnt by record credit card defaults over the past year, as the tight economic environment has forced a record number of consumers to walk away from their credit card debt. By courting people with high credit scores, card issuers get the advantage of attracting a pool of low-risk cardholders.
And spending on rewards credit cards is a win-win situation for card issuers. Rewards credit card users tend to be more loyal and favor their rewards credit cards over other cards whenever they swipe their plastic. By sweetening rewards, credit card companies stand to collect more in merchant fees, while increasing customer loyalty. Merchants pay a credit card transaction fee of a 1 to 2.2 percent each time customers pay with credit cards, a significant source of credit card earnings. In 2008 alone, card issuers collected over $40 billion in fees from merchants, according to the Nilson Report.
Furthermore, card issuers may never have to issue the rewards earned. A surprising amount of credit card rewards go unused: in a given year, anywhere between 5 to 30 percent of a specific rewards program’s points will never be cashed in by consumers.
Increasing reward credit card deals is also a way for card issuers to compete with another, subtler rival: debit cards. Last year, credit card use fell 11 percent to $1.92 trillion, while debit card use rose 7 percent to $1.45 trillion. Experts predict that the gap between these figures will continue to close, and that eventually, debit cards will emerge as the new preferred payment form.
While this may be good news for consumers, not all rewards are as good as they may seem. Some card issuers have actually pulled back on rewards. The Discover More card, for example, used to come with a 5 percent cash back bonus on select purchases and 1 percent cash back bonus on all other purchases. However, while the card still offers 5 percent cash back on rotating, select purchases, cardholders now earn only .25 percent on other purchases up to the first $3,000 in charges, and 1 percent thereafter. Also, the cash back earnings have no expiration date, they will be forfeited if the account is inactive for 18 consecutive months, if the cardholder pays late twice in a row, or if the account is closed.
So, while credit card rewards offers overall appear to be on the uptick, there is still reason to proceed with caution. Read the terms and conditions carefully before applying for a rewards credit cards, and check the terms for your existing rewards credit cards carefully to make sure they haven’t changed in undesirable ways.
