Types of Credit Card Rewards: Pros And Cons

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Types of Credit Card Rewards: Pros And Cons

Updated: December 26, 2012

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Credit card rewards are one of the more important reasons why many people prefer one credit card over another. Often this is so important that people ignore good brands and take credit cards from lesser known companies. However, not all credit card rewards are as good as they seem. Similarly, some credit cards with apparently lesser rewards are more beneficial for a customer. To understand this one has to consider all the types of credit card rewards that exist currently.

The first type is when customers get loyalty points. For every purchase of hundred rupees or so, the customer receives a few points. This tally builds up over time. Customer can redeem these loyalty points in two ways. Some cards offer cash instead of these points while others have a gift store from which customer can choose the articles he or she wants to get instead of the reward points. Another type of reward on credit card is a cash back which is generally a fixed percentage of every purchase that gets added to a customer's account. In effect, whatever a customer buys, he or she gets some discount. The third kind of reward is special discount in some select outlets of a brand or super malls. The last kind of reward is usually more in the form of services that do not have direct monetary benefits but are more to do with brand building and prestige. Some cards offer free air miles, concierge services, first class lounge entry in airports etc.

Although some rewards like cash back or discounts in select outlets seem important, customers must know that there are hidden conditions like an upper limit on the cash back. The discounts are usually on purchases above a certain limit which are practically leading you to spend more than what you would normally do. These are the disadvantages of the rewards. Similarly reward points sometimes are not sufficient to exchange for gifts of your choice and expire before you can accumulate enough. Similarly oil coupons or grocery coupons too lead you to buy from places you never go to or do not prefer.

Credit card rewards are usually a way of the companies acknowledging the customer's business rather than a way to making a huge profit. Some deals are really good but in the longer term, credit card rewards are not a good factor to judge the worth of a credit card compared to other important aspects like interest rate and brand.

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