Free. Free. Free. Everyone likes free, don’t they? Think about it in terms of your own financial life. You really like when you get free flights, you probably like free car rentals, and we bet that you make sure that you get your coffee loyalty card punched so that you can finally turn it in and get that free 20oz cappuccino. However, before you start thinking that all of those things are free, you have to step back and realize what the common thread is in all of your transactions — you are spending money in order to get these rewards.
They are a longer form of customer loyalty — if you’re going to spend the money anyway, then they make appealing targets. However, if you’re thinking about getting a rewards credit card just to get the rewards, then you might want to back up and think about all of the things that you’re going to have to do in order to get the rewards.
First and foremost, you’re going to have to apply for the card. If you don’t have a good credit score already, not only will you most likely be rejected, but you’ll have an inquiry on your credit report. Too many inquiries can hurt your credit score, and this is definitely not a good thing at all. You just need to stick to a few credit cards, especially if the ones you have are already at their limit or getting close. Utilization plays a role in the type of credit score you have, because creditors feel that if you’re pushing your limits, it could be a sign that you’re not financially stable and thus at greater risk for default than other people. Instead of getting upset at the credit card companies, you just need to adjust your strategy. If you really want a rewards credit card, you will need to make sure that you pay down your credit cards so that you took look too risky to creditors.
Another point that you will definitely run is definitely the presence of annual fees. Annual fees are designed to be another source of revenue for the credit card companies, and it’s the cost of owning that card. That already makes the reward credit card something that you will need to pay for in order to receive any type of rewards. Even if you don’t have to pay an annual fee, you’re going to have to deal with an interest rate that might be higher than a card without the rewards.
Overall, you’ll have to really step back and decide if the promise of rewards is really worth it. If you plan on spending on a lot of money either way on a credit card, then rewards could be promising. Still, it might be better to just keep the credit cards to a minimum and go with cash. After all, you really don’t want to get in trouble with credit cards, you know!