Credit Card Rewards Programs Rewarding... Or Not
Below is a MRR and PLR article in category Finance -> subcategory Credit.
Credit Card Rewards Programs: Are They Truly Rewarding?
Introduction
In 1950, the concept of the credit card that could be used across multiple merchants was born with the Diners Card, an innovation by Frank McNamara. The idea struck him during a business dinner when he embarrassingly realized he had forgotten his wallet. This moment of inspiration led to the creation of a card that allowed people to purchase goods and pay for them later. Starting with 200 cardholders, the credit card industry soon expanded as banks and companies began issuing their own cards.
The Rise of Reward Programs
With the influx of many credit cards in the market, companies needed ways to differentiate themselves. Around 1986, reward programs were introduced. Discover Card pioneered cash back rewards based on spending, and Continental Airlines launched the first frequent flyer miles for cardholders. The success of these programs prompted almost every airline to offer rewards like discounted trips and free airfare, all tied to credit card spending.
Evolution of Reward Strategies
As reward programs became ubiquitous, credit card companies had to innovate further to attract customers. This led to the creation of cards with highly specific rewards tailored to individual lifestyles. According to Michelle Shepherd of MBNA Corp, rewards are designed to suit every stage of life, from mortgage reduction to attending major events like the Super Bowl. Examples include MBNA's NASCAR and GMAC rewards, and Visa's Disney-themed programs offering points for Disney park and cruise experiences.
The Role of Interest Rates
With a general rise in credit card interest rates, lenders rely heavily on enticing rewards to draw new customers. These programs are marketed to overshadow the unattractive interest rates, making them seem more appealing.
Caveats and Considerations
While rewarding, these programs often come with hidden terms. Many rewards have limitations, such as caps that stop benefits once a certain threshold is reached?"details often not disclosed upfront. For rewards that allow purchasing items with earned points, be aware of possible additional charges for shipping and handling. Travel-related rewards may also require transaction fees for redemption.
In conclusion, while credit card reward programs can be beneficial, it's crucial to thoroughly understand their terms and conditions to truly gauge their value.
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