4 Rewards Gotchas Credit Card Companies Don’t Want You To Know

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Four Credit Card Reward GotchasEvery good thing has the potential to have some hidden pitfalls that you don’t expect. The same thing is true for credit card sign up bonuses. There are some amazing bonuses out there with almost no strings attached but there are some great bonuses that have small gotchas involved. Ultimately, they’re still worth the time and small bit of trouble.

Today I’d like to share what some of those small inconveniences may be and how to plan for them. After all, you don’t want to find out about these potential pitfalls when you’re about to use your rewards to pay for the vacation of your dreams, only to find out it isn’t possible.

Gotcha #1: All Redemption Options Aren’t Equal Value

This inconvenience can really set you back the first time you run into it. You’re super excited that you just earned 40,000 points and you’re ready to redeem them for a $400 check, but when you go to check out you realize when you redeem points for a check you only get $0.005 per point rather than the standard $0.01 per point on most credit cards.

After reading into the details a bit more, you realize that you can get $400 worth of value out of your points. Rather than getting a check you’ll have to use your points for a statement credit on ONLY travel purchases within the last 90 days.

Varying the redemption value of your points is a common occurrence with many credit card reward programs today. It is more important than ever to read all of the fine print about the rewards program before you sign up for a card. If you have any questions, make sure to contact the card issuer and ask.

Gotcha #2: You Must Redeem A Minimum of 2,500 Points At A Time

Not all rewards programs are the same. That is even more true when it comes to rewards redemption minimums. Some programs have no minimum redemption amounts if you use your points as a statement credit. Others require you to redeem your rewards in 1,000 point, 2,500 point or 5,000 point increments.

Make sure you know what the minimum redemption amount is for the rewards program you’re eyeing before you apply for the card. Otherwise you might end up leaving some valuable points behind to pursue more lucrative bonus offers. No one likes leaving points behind.

Gotcha #3: Points Earned Aren’t Immediately Added To Your Account

Some credit card issuers are better than others about crediting your rewards points to your rewards accounts. How fast rewards are added to your accounts can also differ between regular points earned on purchases vs points earned for signing up for the credit card. Most issuers will credit points for purchases when your statement comes out but the leading programs will add your points as soon as your purchase clears.

As far as sign up bonuses go, some issuers say it takes 6 to 8 weeks or longer to credit your sign up bonus rewards points after you pass the requirement threshold. Other issuers will credit your rewards immediately. If you’re planning on using these rewards on a tight deadline, make sure you understand how quickly (or slowly) your rewards will be available for redemption.

Gotcha #4: Your Rewards Points Are Capped at X,XXX Per Year

Believe it or not, some credit card companies will cap the amount of rewards you can earn in a year. When I was recently reading the terms on a credit card I was interested in, I saw that I could only earn up to $300 cash back in the year. After that I’d quit earning cash back for the rest of the year. LAME! If you’re planning on using one credit card exclusively, make sure there isn’t a cap on the amount of rewards you can earn in a year.

The other limit you should watch out for is bonus category cash back limits. Many credit cards will limit the amount of spending that bonus cash back rewards will be paid on. The bonus 5% category cards are famous for limiting purchases that the bonus applies to at $1,500 per quarter. Other cards will limit your higher cash back categories at $6,000 in purchases per year. Be sure you know the limits so you aren’t wasting your purchases by not earning any rewards.

Lesson Learned: Read The Fine Print

The secret to finding all of these gotchas is to read the fine print! Many of these inconveniences will be there for you to read. The only problem is, most people never read the fine print. Don’t be that person. Know what you’re getting into.

Not all reward information is in the fine print, though. Make sure you research your redemption options before you sign up for a credit card so you can see if there is a reward you want or if you’ll be disappointed when you go to redeem your points. Just read the fine print and do a bit of research and you’ll be well on your way to enjoying the world of credit card rewards!

What other gotchas or inconveniences have you seen with credit card rewards or credit card sign up bonuses? Let us know in the comments below!

P.S. Are you ready to start looking for a sign up bonus or rewards credit card? Check out this post to see the best credit card sign up bonuses available today!

Photo by: Consumerist Dot Com Enhanced by: Lance Cothern

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About Lance Cothern

Lance Cothern, a Certified Public Accountant (CPA) licensed in the Commonwealth of Virginia, is the founder of Money Manifesto. You can read more about him here or connect with him on Facebook, Twitter, Google+ or Pinterest.

Comments

  1. Credit Card Companies like to make it look good by giving you thousands and thousands of points……then you realize that it takes 50,000 points to get a $10 item. If I were to ever use a credit card rewards program, I’d prefer one that gives cash back.

    • Capital One Quicksilver and Navy Federal cash rewards each pay a flat 1.5% cash back on all of your purchases. A decent card for sure for straight cash back.

  2. Oh yes, this happens all too often. If you don’t read the print, then you might not know you can’t redeem all of your points or the value is not as much if you don’t redeem for this or that.

  3. Great post, Lance. I’ve been pretty hesitant to get into the rewards churning stuff, for a number of reasons, but this post gave me a few more to make sure to beware of before we start getting rewards cards. Thank you!

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