Don't Lose Your Share of $48 Billion in Credit Card Rewards

business man holding credit cards
Consumers with good or excellent credit often play the game of switching their loyalty from one card to another to accumulate airline miles, hotel room vouchers, gift cards or cash back, so that they can enjoy maximum rewards. At least that's how it's supposed to work.

But a recent study by CardHub shows that while credit card companies provide about $48 billion in rewards each year, about one-third of those rewards are never redeemed.

Some of the blame for leaving money on the table (or in the hands of credit card companies) lies with consumers who forget about the rewards points they've been earning. But the study also found that limitations set on redemption and the way points can be earned prevent cardholders from using credit card rewards programs to their maximum potential.

Credit Card Rewards Programs Compared

CardHub's study compared rewards credit card offers from the 10 largest credit card issuers, reading the fine print on dozens of rewards programs, to see which ones were the easiest to use. Then it scored the credit card companies in several categories, such as:
  • Capital One (COF) cards received an overall "Rewards Friendliness" score of 96.43 percent because its cards have the fewest rewards limitations. In addition, Capital One received the highest score (100 percent) in the "Rewards Redemption" category.
  • Bank of America (BAC) received the highest score (100 percent) in the "Rewards Expiration" category -- for having the longest-lasting rewards.
  • Barclays' (BCS) Barclaycard, Capital One and Wells Fargo (WFC) each received a 100 percent score for the "Rewards Earning" category.
  • The Discover (DFS) It Card has the most rewards limitations of all the credit cards reviewed and earned the lowest overall score (50 percent). It received the lowest score in the "Rewards Redemption" category (60 percent), and it tied with Citibank (C) and Barclaycard for the lowest score (33.33 percent) in the "Rewards Expiration" category.
CardHub found that the most common requirement among credit card rewards programs that prevent consumers from redeeming rewards is a minimum spending threshold. Rewards expiring after a missed payment were the most common limitation among the cards.

%VIRTUAL-article-sponsoredlinks%A recent Bankrate study looked at 54 cash-back credit cards from 21 credit card companies and found that the companies are offering sign-on bonuses to entice new customers, but they're requiring consumers to make a minimum amount of purchases within a small introductory period to earn those bonuses.

For example, 19 of the 30 cash-back credit cards that offered a sign-up bonus required consumers to spend between $500 and $3,000 on the cards within the first three months of having them. Only three cards handed over the bonus just for making a single purchase: the Barclaycard Rewards card, the Affinity Federal Credit Union Pure Rewards Visa (V) and the Priceline (PCLN) Rewards Visa.

Credit Card Rewards Tips

CardHub and Bankrate offer these tips for consumers looking for the best rewards credit card:
  • Go with a cash-back credit card for the easiest way to accumulate rewards. Cash-back cards have the bonus of letting you use your rewards to pay your bill.
  • Watch out for credit cards with a zero-percent introductory rate. If you carry a balance and think you might not pay off the balance in full before the introductory period expires, check to see what the annual percentage rate will be before you accept the new card. You could end up paying more in interest when the intro period ends than you're paying on your current credit card.
  • Look for a sign-on bonus. If you have excellent credit that won't be hurt by signing up for a new credit card, get a new one each year to accumulate up to $400 in cash or airline miles.
  • Read the fine print. Make sure you understand the minimum spending threshold you need to meet before you earn rewards, and whether there's a cap on how much you can earn each year and on how much you can redeem each year.
  • Set your bills on autopilot. CardHub found that one of the most common reasons cardholders lost their rewards was that they missed a payment, so set up an automatic payment for at least the minimum each month.
  • Avoid rotating categories. If you have to sign up for different rewards categories or the categories for earning the most points change periodically, you're less likely to earn the maximum rewards.
  • Redeem your points before you close an account. It's best for your credit score to keep older accounts open anyway, but if you decide to cancel a credit card, make sure you redeem your rewards points first; otherwise they're gone forever.
  • Try an "everyday" rewards card. Unless you're extremely loyal to one airline or hotel chain, it's best to get a rewards card that lets you choose from a variety of rewards and allows you to redeem your rewards earnings at least twice a year.
Playing the rewards game can be valuable, but you need to stay on top of the rules and restrictions in order to maximize your winnings.

Michele Lerner has no position in any stocks mentioned. The Motley Fool recommends Bank of America, Priceline Group, Visa and Wells Fargo. The Motley Fool owns shares of Bank of America, Capital One Financial, Discover Financial Services, Priceline Group, Visa and Wells Fargo and has the following options: short June 2014 $48 puts on Wells Fargo.

Why Your Bank Thinks Someone Stole Your Credit Card
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Don't Lose Your Share of $48 Billion in Credit Card Rewards

One reason why Marquis' gas purchases might have triggered a fraud lockdown? Filling their tank is a common first move for credit card thieves.

"Some of the things they look at are small-dollar transactions at gas stations, followed by an attempt to make a larger purchase," explains Adam Levin of Identity Theft 911.

The idea is that thieves want to confirm that the card actually works before going on a buying spree, so they'll make a small purchase that wouldn't catch the attention of the cardholder. Popular methods include buying gas or making a small donation to charity, so banks have started scrutinizing those transactions.

Of course, it's not a simple matter of buying gas or giving to charity -- if those tasks triggered alerts constantly, no one would do either with a credit card. But Levin points to another possible explanation: Purchases made in a high-crime area are going to be held to a higher standard by the bank.

"It's almost a form of redlining," he says. "If there are certain [neighborhoods] where they've experienced an enormous amount of fraud, then anytime they see a transaction in the neighborhood, it sends an alert."

(Indeed, Erin tells me that one of the gas purchases that triggered an alert took place in a rough part of Detroit, which she visited specifically for the cheap gas.)

People who steal credit cards and credit card numbers usually aren't doing it so they can outfit their home with electronics and appliances. They don't want the actual products they're fraudulently buying; they're just in it to make money. So banks are always on the lookout for purchases of items that can easily be re-sold.

"Anytime a product can be turned around quickly for cash value, those are going to be the items that you would probably assume that, if you were a thief, you would want to get to first," says Karisse Hendrick of the Merchant Risk Council, which helps online merchants cut down on fraud. Levin says electronics are common choices for fraudsters, as are precious metals and jewelry.

Many thieves don't want to go through the rigmarole of buying laptops and jewelry, then selling them online or at pawnshops. They'd much prefer to just turn your stolen card directly into cold, hard cash.

There are a few ways that they can do that, and all of them will raise red flags at your bank or credit union. Using a credit card to buy a pricey gift card or load a bunch of money on a prepaid debit card is a fast way to attract the suspicions of your credit card issuer. Levin adds that some identity thieves also use stolen or cloned credit cards to buy chips at a casino, which they can then cash out (or, if they're feeling lucky, gamble away).

When assessing whether a purchase might be fraudulent, banks aren't just looking at what you bought and where you bought it. They're also asking if it's something you usually buy.

"The issuers know the buying patterns of a cardholder," says Hendrick. "They know the typical dollar amount of transaction and the type of purchase they put on a credit card."

Your bank sees a fairly high percentage of your purchases, so it knows if one is out of character for you. A thrifty individual who suddenly drops $500 on designer clothes should expect to get a call -- or have to make one when the bank flags the transaction. If you rarely travel and your card is suddenly used to purchase a flight to Europe, that's going to raise some red flags.

Speaking of Europe, the other big factor in banks' risk equations is whether you're making a purchase in a new area. I bought a computer just days after moving from Boston to New York, and had to confirm to the bank that I was indeed trying to make the purchase. Levin likewise says that making purchases in two different cities over a short period of time raises suspicions.

"I go from New York to California a lot, and invariably someone will call me [from the bank], " he says. Since one person can't go shopping in New York and California at the same time, any time a bank sees multiple purchases in multiple locations in a short period, it's going to be suspicious.

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