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7 ways to spot unrewarding rewards cards

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Cumbersome rewards redemption
When you've spent enough to earn some cash back, will you automatically receive a check in the mail or will you have to initiate the redemption process? If you hate mailing rebate forms, you might want to search for a card that offers automatic rebates. The Citi CashReturns MasterCard, for example, sends its cardholders a check when they've earned $50 in rewards.

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Pay close attention to the amount you need to spend in order to get cash back. With the Citi CashReturns card, it takes $5,000 to earn back $50, after the teaser return rate of 5 percent expires after three months.

Some issuers only provide rebates annually, so find out how long you must wait before redeeming rewards.

Make a spreadsheet
To make comparison easier, create a spreadsheet to document the differences between cards, says Bill Hardekopf, CEO of LowCards.com. Use it to document bonus payouts for certain purchases, as well as the maximum payout for each card, for example.

"You want to get it to a point where you're comparing apples to apples," he says.

Avoid spending to save
Once you obtain a rewards credit card, remember that charging everything to your new card to earn points can hurt your credit score. Great credit scores stand to suffer the most.

"For example, let's say someone has a score in the low 800s, which is a fantastic score," says Ulzheimer. "One of the reasons why they have that fantastic score is because they have a very low utilization. Let's say hypothetically that they opened up a brand-new rewards card with a $10,000 credit limit and then went out and went hog wild because maybe the first two or three months they got double points, which is common in the rewards world, and they go out and they charge a $6,000 flat-panel television, a $3,000 couch and $700 on dinner and clothing. Well, now we're $9,700 into a $10,000 credit limit -- we're 97 percent utilized. That in and of itself could cause that low 800 to drop to a high 600."

He says if people plan to buy a home or car in the next 12 months, they shouldn't charge more than 10 percent of the limit. "Now, that doesn't mean you can't go out and use it; what it means is you can't revolve more than 10 percent month after month or your credit score will never fully recover. You have to have the ability to write a big check at the end of the month and pay it back down to less than 10 percent. You still get the points, but you're also saving your score at the same time."

Don't hoard your rewards
Besides the fact that rewards can expire, issuers always reserve the right to change the terms of your rewards program. "It's common for credit card rewards programs to suddenly increase the number of points you need to redeem for, say, an airline ticket, or as Discover has done, reduced the amount of rewards you're effectively able to accrue," Ridout says.

You might also forfeit your rewards if you go into default, or let your account go inactive.

Bankrate.com's corrections policy -- Posted: Feb. 19, 2008
 
 
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