Credit card issuers are using rewards to entice new customers.
Credit card mailings are up dramatically in large part due to credit card offers promoting rewards programs, according to a recent study by Mintel Comperemedia, a marketing research firm based in Chicago.
American consumers received about 1.2 billion offers for new credit cards in the third quarter of 2010, a significant increase from the 391 million card offers mailed in the third quarter of 2009.
Eight in 10 of those new credit card offers were for rewards cards promoting points, miles or cash back to consumers. Cash-back cards were especially popular, accounting for 41 percent of all rewards offers sent in the third quarter of 2010, according to Mintel Comperemedia.
Before applying for the next rewards card offer that lands in your mailbox, you'll want to consider the offer carefully.
Annual fee. Does the card come with an annual fee? Many rewards cards do not charge annual fees, but some do. If a rewards card comes with annual fee, will you be able to spend enough and earn enough rewards in a year to offset the annual fee?
Rate of rewards. How quickly can you earn rewards with the card? Will you earn one rewards point or mile for every dollar you spend with the card? Or will you earn two rewards points or miles for every dollar that you spend?
Will you earn a higher rate of rewards for specific types purchases that you make with the card? Are these purchases that you are likely to make?
How quickly can earn money back with a cash-back card? Do you earn 1 percent or 2 percent cash back with every purchase you make with the card?
Some cash-back cards are offering 5 percent cash-back rewards on specific categories of purchases as part of their quarterly bonus rewards programs.
How quickly can you cash in your rewards dollars, miles or points? Do you need to reach 5,000 or 10,000 or 25,000 rewards points or miles? Can you snap up that cash-back reward at $25 or $50?
Are there limits on the rewards you can earn with the card in a year? When do rewards points expire? Will you be able spend enough to earn the reward that you want before the points expire?
Your spending habits. Do you charge a lot or a little with your credit cards? How long will it take you to charge your way to a reward?
If you're a light spender, you might want to opt for a card with a lower spending threshold for rewards. Otherwise, you could be charging away on a card for years without reward.
If you're a heavy spender, you might want to choose a rewards card that gives you a boost for reaching a higher spending threshold. For example, some cash-back cards offer tiered rewards rates based on spending level. They pay larger cash-back percentages once you reach an annual spending threshold.
With rewards cards, it's a good idea to pay off your card balance each and every month. If you don't, interest charges will negate any rewards you are likely to earn with the card.