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Credit use has rewards, but they come at a price

August 31, 2003|by LAURA ERNDE

laurae@herald-mail.com

For about 10 years, Matt Guiger remained loyal to one credit card company that gave him a competitive interest rate.

But since he pays off the balance every month, the low interest really wasn't a benefit to him.

A few months ago, he decided to switch to a Discover card that earns him up to 2 percent cash back for his purchases.

"I try to rack that thing up as much as I can," said Guiger, 29, a systems engineer for Netconn Solutions of Hagerstown.

Credit card companies these days offer a dizzying array of rewards to attract new customers in an increasingly competitive market, according to Myvesta.org, a nonprofit financial management organization.

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No matter what your interest or hobby, it seems there is a reward card geared toward you, said Myvesta president and co-founder Steve Rhode.

Most cash-back cards offer a 1 percent rebate on purchases charged to the card as long as you have good credit.

Some cards double or triple the rebate, depending on where you spend your money. For example, the Disney Bank One card earns 2 percent for special Disney offers, according to a comparison of cards on cardoffers.com.

Other cards offer rewards such as free gas, discounts at your favorite stores or free DVDs, Rhode said.

Bank One offers Amazon.com, Marriott and Waldenbooks reward cards, to name a few.

MBNA America offers an L.L. Bean credit card that provides free shipping and points toward free merchandise from the store, according to cardoffers.com.

In addition to cash back, some credit cards reward their customers with rebates on gasoline, auto purchases or travel.

Airline cards are some of the most popular reward cards to use, but those cards often come with annual fees and 75 percent of the points are never redeemed, Rhode said. One airline mile is worth roughly 6 cents.

Guiger said he considered getting an airline mileage card before he settled on the Discover, but he didn't want to pay the annual fee.

Guiger charges most of his personal expenses to his Discover card, along with the business travel expenses for which he gets reimbursed.

Netconn gives its employees the option of using their own credit card or a corporate card that earns points under the American Airlines frequent flyer program, said office manager Debbie Burriss. At its annual Christmas party, the company gives away two plane tickets earned with the miles.

Businesses and individuals who pay off their credit cards every month can benefit the most from reward cards, Rhode said.

"The biggest pitfall is not taking advantage of the rewards you've earned," Rhode said.

Rhode warned against making purchases just to receive the perks from your credit card.

"You need to ask yourself if it's worth charging $1,000 worth of stuff on your credit card just to get $25 off your check at Red Lobster," he said. "It's always nice when there are benefits for using a credit card, but if you're charging more than you can afford just to get the perks, those free rewards end up costing big bucks.

Interest rates are often higher on reward cards than traditional credit cards, he said.

Keep in mind that the reason behind the reward cards is to get you to spend more money.

"Reward programs are not established for our benefit. They're established to attract and retain new customers," he said.

Two of the best sites to compare different credit card offers are cardweb.com and bankrate.com, Rhode said.

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