Credit card loyalty programs

Credit card loyalty programs

Wow, these things change like the weather and to derive the most value you really need to watch some of the experts out there who’ve devoted their lives to watching the shenanigans of the credit card companies. I’ve researched and compiled some information for you to consider.

Types of Rewards

There are three basic currencies here:  cash back, miles, and points.

Cash Back:

This concept is quite clear as far as rewards go and with this type of card a predefined percentage of your purchases are returned to you.  From what I can tell, the most common way to redeem earned cash back is a statement credit but there are programs that’ll send a check in the mail as well.

One percent cash back across all purchases appears to be the norm and quite a few cards offer 1% as a base earning rate that’s supplemented by higher earning rates in specific spending categories.  The good feature with cash back is that it can’t be devalued by credit card companies.


Credit card miles fall into two categories; they are either tied to a particular airline or are generic and can be used for any travel-related expense.

If you’re loyal to a particular airline, then co-branded credit cards are a good choice.  If you travel extensively and are interested in travel-oriented rewards, not a particular airline the second is a great choice for you


The two types of credit card points are hotel and generic (which are redeemable toward merchandise).  Be careful here and use points-based credit card rewards if you’re sure you’ll be able to redeem often enough to benefit consistently, avoid devaluation, and maximize value.

Initial Bonuses:

Much like free agency, it’s become common for credit card companies to offer well-qualified new customers what effectively amounts to a signing bonus.  I’ve seen lump-sum rewards of up to 70,000 miles if you spend a predefined amount within certain time limits.

I normally watch for these types of offers as it’s a great way to supplement another card’s ongoing earning rate.

Spending-Based Rewards:

Earning rewards based on your purchasing habits is probably the most common way to earn with your credit card.  If you use credit consistently to make specific purchases, you should try and get a card with favorable earning rates in areas where you spend the most money.  If you read the fine print you’ll probably see that generally no rewards are given for cash advances, balance transfers, or the use of checks provided by your credit card company.

Anniversary Bonuses:

I have seen a few credit cards that’ll even give you a free flight, hotel night, or a certain amount of points, miles or cash back each year on your account anniversary.  Typically these cards quite often have a high annual fee, and the freebie is an attempt to justify it.  Be sure the fee is worth the reward though.

Redeeming Rewards:  Value & Versatility

Most credit cards rewards are redeemed in predetermined denominations such as multiples of $25 cash back, or enough miles for a flight.  As a general rule you should be presented with a few different options in terms of how you can redeem your rewards as well.

Obviously you want the most value for your money so take some time and calculate how to the biggest bang for your buck. For cash back cards this process is straight forward but for miles and points-based credit cards it’s crucial.  I probably don’t need to mention that credit card companies want you to use less lucrative redemption methods. To circumvent this you should know how to calculate the dollar-value of any non-cash redemption option before using it.

Here’s an example for you:  With 20,000 points you may be able to get $100 cash back, a $150 gift card, a flight that normally costs $200, etc.  If you compare your options, it should be clear which one will provide the best return on investment.


From experience and research it appears you can request your rewards balance be cashed out and mailed to you via check each year.  Read the fine print to be sure.

Statement Credit:

Another way to redeem rewards is via statement credit.  You should be able to select this option at some point so the company will credit your rewards balance to your account to help you pay your bill.

Gift Cards:

Something I’ve been seeing more of is issuers offering gift card redemption through their online shopping malls.  Redeeming a gift card at a favorite retailer is often better than redeeming your rewards directly for merchandise through a credit card shopping mall.  Generally this option appears to be a poor value.


The selection of consumer goods from clothing to electronics – in credit card shopping malls appears to be increasing.  There is normally a dollar figure (or a discount percentage) next to each item in an online shopping store, so it appears you’re getting a deal.  There are costs for running these online stores so expect to pay more than if you were to shop at a major online shopping site, for example.


Typically, many credit cards allow you to redeem rewards for a charitable donation.  If your credit card company doesn’t offer this or you don’t see a charity you like, you can always redeem for cash or a gift card and give back that way.

Special Experiences:

Some of your higher end cards offer special benefits to an elite group of customers.  They normally allow you to qualify for certain “unique experiences”, like exclusive access to event tickets, celebrity meet-and-greets, and the like.

What to Watch Out For:  Common Pitfalls & Complaints

Remember, credit card companies are out to maximize profit so rewards programs can be a bit tough to navigate.  There have been changes in the legal landscape so the bait-and-switch pricing is not as egregious as earlier and the terms are more transparent.  Be aware that there are a number of caveats and pitfalls that come with rewards card use and being informed or taking the time to research and read the contract can only work in your favor.

Earning Limits:

Here is a notorious habit I’ve seen many times, monthly, quarterly, or annual earning limits – either in certain spending categories just in general.  This effectively limits your ability to extract maximum value from their products.

If you’re an average card holder, earning limits may not impact you in any meaningful way; for example if a credit card offers 6% cash back on grocery purchases up to $6,000 annually and you only spend $3,000 each year.  On the other hand, limits could very well prevent you from accruing rewards late in a given billing cycle or the calendar year.  I’ve mentioned this before, read the fine print and consider how it applies to your spending habits before signing up.

Rotating Categories:

Here is a trick I’ve seen issuers use to rope in unsuspecting customers:  Rotating categories.  This creates a scenario where they can advertise a high maximum earning rate without actually paying anything close to that in practice.  You no doubt have seen offers declaring the ability to earn 5% cash back in popular spending categories that change on a quarterly basis.  Here’s the kicker though.  You have to sign up to earn that rate each quarter when the updated discount categories are announced.  In actual practice it’s likely you’ll forget and have no way of knowing how much you stand to benefit from quarter to quarter.

Redemption Versatility:

Pay attention to what your rewards can be redeemed for, and if there is any meaningful value.  Those are two key questions you should ask yourself when considering a rewards credit card.  You may very well rack up a giant pile of rewards, but how valuable are they in practical application.  That’s definitely true when it comes to travel rewards because if you’ve ever redeemed them you know all too well what can happen.  All points and miles don’t carry the same dollar value, and not all issuers work with the same airlines and hotel chains.

I’m not surprised to see a growing interest in redemption versatility and this in turn is forcing some issuers to expand their network of corporate partners so customers have more options.

Rewards Devaluation:

Rewards issued in the form of points or miles, typically have plateaus you must reach in order to redeem them certain goods and services.

The problem is these plateaus are not guaranteed to be static. So, whenever an issuer increases the number of points or miles needed for redemption, your stash is suddenly and effectively worthless.

A way to get around this problem is to redeem your points/miles frequently. This accomplishes two things.  It minimizes the number of points/miles that are vulnerable to devaluation and allows you to benefit from your rewards more often.

For this to be useful you must have a credit card offering rewards on something you purchase frequently.  Or, as mentioned earlier, you could just go for a cash back credit card and avoid the hassle altogether.

Rewards Expiration:

It probably comes as no surprise point/miles expiration dates have historically caused a bit of consumer anger and have therefore been largely eliminated.  But, be aware that there are rewards programs that still have them.  This is why as an informed consumer you should search through the fine print of a credit card offer for mention of the word “reward” and any caveats that might be enumerated there. Something I do is download the contract to my computer and then use technology to make the search easier.  I do this by opening the document and pressing the CTRL and F buttons which opens up a search box.  Type in the term you’re searching for and let the software make the work easier.

Oh, be aware that you can’t keep the rewards you’ve accumulated when you close an account.  So always make sure to cash out beforehand.

Rewards-Based Overspending:

Here’s a trap you definitely should consider avoiding.  Spending more than you ordinarily would just to earn some rewards, even if the bonus is a bit over the top.


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