Reward cards broaden offerings, but at a price

10/19/2003

It used to be that shoppers might be able to get free airline tickets if they used certain credit cards enough.

Now, through rewards programs often offered with no fees, they can get hotel rooms, tickets to sporting events, meals, and electronic devices, not to mention funds for their alma maters or favorite charities. It can be done by collecting points every time a purchase is made with certain credit cards. The number of points depends on how much is charged and where.

“We're dealing with an educated public that know they can maximize the value of their card in a way that addresses things that they like,” said Jeff Lyttle, a spokesman for Bank One Corp., of Chicago.

The purpose of reward programs is to get customers to use credit cards as much as possible, Mr. Lyttle said, because banks make money from the merchants where the card is used. Banks also make money on finance charges if a balance is not paid in full each month and on late fees.

That's why customers who have a tendency to carry a balance or to make late payments should determine first whether they would benefit from a rewards program. Questions to ask before deciding on whether to get a reward card:

wWhat's the annual percentage rate of finance charges on the card, and is there an introductory rate and how long does it last? Three out of every four card users don't always pay balances in full each month, and most rewards cards do not offer as good a rate as the ones on traditional cards.

wHow long after the due date does a customer have to pay a bill before a late fee is charged and how much is that fee? Rewards points can be frozen for a month or sometimes until the penalty fee is paid. Two late fees averaging $35 each might turn out to be more expensive than the award.

wIs there a cap on the reward? Some cards will pay rewards only up to a certain amount.

wWhat are the restrictions, such as blackout dates on trips, and what is the likelihood that a prize might not be available when enough points are accumulated?

Also, consumers should know that rewards programs can be altered or discontinued with little notice.