Rewards Credit Cards: Understanding the Basics
In today’s dynamic world, more often than not, Credit Card companies lure new customers and retain existing ones by offering incentives for using the card to make purchases and pay bills. These incentives often come in distinct forms, as some companies offer you these on the percentage of your card usage, while others only reward you for making specific purchases, or spending in dedicated verticals.
Let us take a quick look at certain Types of Credit Card rewards, and what they imply.
Types of Credit Card Rewards
In most cases, Credit Card companies offer incentives in three distinct categories:
These points are usually given out on per Rs. 100 you spend, or in some cases Rs. 50 or Rs. 150 you spend using the card. Besides, while some Credit Cards help you earn rewards on all of your spending, there are others which need you to spend on a particular vertical such as dining, entertainment, travelling, groceries, utilities, and so on in order to reap the points. There are also some Credit Card companies, which offer higher reward points when you shop with their partner brands.
These points can later be redeemed by picking a gift from the company’s merchandise partners. In case you do not wish to take a gift, some companies allow you to redeem the points in the form of discount cards, and even cash. However, when it comes to retrieving the highest value, you will be better off, choosing a gift from the company’s offerings.
In most cases, the rewards points can only be redeemed, when you have them in a stipulated set of multiples like 50, 100, 500, and so on, with a specific minimum.
Air Miles, also known as miles, can be earned when you use a Travel Credit Card. As in the case of reward points, the credit company incentivises your spending with miles. You can later redeem these miles to pay for your next flight ticket. These days, a vast majority of Credit Card companies also allow you to redeem your miles for other travel related services such as hotel stays, airport lounges, and so on.
While you also have the choice to convert the miles you earn into gifts or cash rewards, you must remember, this may lead you to lose out on some value.
Cash Rewards / Cashbacks
These are usually offered in a bid to help you reduce your card balance. You can conveniently use the accumulated cash rewards to pay your Credit Card bill in part or full. It is crucial for you to understand that in most cases, cash rewards don’t denote actual cash, but cash rebates. You can either credit the rewards to your account or redeem them while making purchases. Some card providers also allow you to redeem the same in the form of a deposit to your bank account, or as gift cards.
Structure of the Rewards
Some Credit Card companies offer, what can be called Flat Rewards. In such a case, for every purchase you make through the card, you earn a reward. For instance, when you use an HDFC Diners ClubMiles Card, you earn as many as 4 Reward Points for every Rs. 150 that you spend, where 1 Reward Point equals 1 Air Mile.
On the other hand, some companies need you to spend a specific amount of rupees, after which the rewards you earn multiply. Then again, there are some Credit Cards, which offer you different rewards based on your spending category. For instance, the SBI SimplySAVE Card offers 1 Reward Point for every Rs. 100 spent. However, if you spend these Rs. 100 rupees on Movies, Departmental Stores and Grocery, you will be entitled to earn 10 reward points. This phenomenon is known as Tiered Rewards.
Things to Remember
While Reward Credit Cards seem extremely astounding, especially to first-time Credit Card buyers, but you must understand a few limitations that these cards inherit:
Most Reward Credit Cards are accompanied by a high annual fee, ranging from a few hundred to a few thousand. You should only buy such a card if you are sure that the returns you enjoy will be higher than the cost you incur.
Reward Credit Cards also attract a higher rate of interest as compared to generic cards. Hence, carrying a balance on such cards can prove to be a costly affair.
Most banks offer reward cards, only to customers with high credit scores. If you don’t happen to have the required score, your application for this card might get turned down.
In a vast majority of cases, the rewards programs are somewhat complicated, and are often in the Tiered Structure, making it tricky for you to reap as many benefits as you are lead to believe. For instance, your Credit Card may only offer you reward points if you shop from a specific brand, or you may only be eligible to earn the points once you have spent a minimum of Rs. 50,000 using your card. You may not be aware of such restrictions while taking the card, due to these being carefully placed in the fine print. In order to have the required know-how pertaining to the rewards programme, it is essential that you meticulously go through the terms and conditions of the card.
Reward points have an expiration date, at least in most cases, if not all. If you don’t use the point before this date, it is highly likely that you won’t be able to use them at all.
In some cases, trying to reap the rewards may lead you to spend more than you intended, leaving you in an unwanted Credit Card debt.
We hope that you now know all that there is to, about Reward Credit Cards. While there may be some limiting factors, if used judiciously, these cards can help you save and even earn money when you spend. Now, what could possibly be better than that?
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