What Are Credit Card Reward Programs?

September 6, 2019 | Mission Fed

Mother and son sitting in a jet ordering from a menu.

Credit unions and banks reward customers for using their credit cards by offering any number of redeemable gifts, including: airline tickets, cashback, and tickets to sold out shows. In doing so, customers tend to increase spending on the rewards. This makes credit card reward programs a win-win situation for both sides.

Types of Credit Card Reward Programs

Finding the right credit card for you often depends on the type of reward program that it offers. For example: if you use your credit card to pay for small everyday expenses, you will want a different set of rewards than someone who uses their credit card solely for traveling. When searching for reward programs best suited for you, try to identify your own spending patterns and choose accordingly.

Some of the most common types of credit card reward programs include:

  • General rewards credit cards
  • Travel rewards credit cards
  • Cashback credit cards
  • Retail rewards credit card

General Rewards Credit Cards

This is the standard system of earning reward points with basic expenses like groceries, gas, and other day-to-day purchases. You can then redeem points on any number of rewards. Because general cards cover most expenses, their benefits are not as significant as specific niche rewards cards.

How to Earn Points

Depending on the qualified purchase, you can earn different points per dollar spent. The standard rate is 1 point per $1. However, with select retailers and merchants, you can earn up to 10 points per $1 spent.

These points are then automatically logged into your account and can be redeemed at any time.

What to Spend Points On

For Mission Fed’s reward program, you can visit the website or use the mobile banking app to search through the possible rewards. As soon as you find the right one, you will simply select it and it is yours.

Some rewards include:

  • Airline flights
  • Travel deals
  • Cashback
  • Gift cards
  • Hotel or motel stays
  • Merchandise and more

Travel Rewards Credit Card

Have a business trip to Hong Kong this weekend? Going on a family cruise to Alaska next month? If you are a frequent traveler, you are well aware of the many costs and frequent flier miles promotions offered by airlines.

If you want to avoid signing up through an airline, ask your credit union if they have a travel-specific credit card. Having one will offer many benefits when it comes time for your trip.

  • Earn points per dollar spent on airfare – To earn reward points, make sure you always purchase the flight with the travel rewards credit card.
  • No foreign transaction fee – When traveling around the world, spending 3% on all transactions can turn a simple grocery trip into a hassle. Yes, 3% isn’t the end of the world, but traveling is already expensive, and the extra fees tacked on can hurt. That is why travel rewards credit cards typically come with no foreign transaction fee.
  • Priority boarding – One benefit from having a travel rewards card is the ability to join priority seating on the plane. This means you’ll never have to worry about overhead luggage space again.
  • Free checked bag – If the airline does not already provide a free checked bag, many travel cards will reimburse you for the cost of checking one in.
  • Airport lounge access – Waiting for your flight can be a nuisance. Especially when there is a two-hour delay and you are stuck sitting in hard-plastic chairs in a loud and overcrowded terminal. Some travel cards offer special airport lounge access so that you can wait in a stress-free, relaxing environment.
  • Companion discounts – Travel cards will offer discounted prices for companion tickets, which is typically offered once a year. This could bring a $600 round trip flight down to $100.
  • Gas rewards – Travel rewards do not exist exclusively for flights. Car expenses and gas rewards are often commonly offered with travel cards.

Cashback Credit Cards

Cashback offers you a percentage of what you spend back at the end of the quarter. There are three different types of cashback cards:

  • Tiered rewards – Depending on how much you spend each quarter, you will be placed into a tier. Usually, there are four tiers, including: bronze, silver, gold, and platinum. The higher the tier, the larger the percentage you receive as cashback.
  • Category bonus – The most involved of the three setups, category bonus credit cards offer premium cashback options for different retailers.
  • Flat percentage cashback – For the least maintenance and hassle, customers prefer flat percentage cashback systems. These will typically offer between 1% to 2% cashback on all purchases across the board.

Retail Rewards Credit Cards

You have most likely been offered these rewards credit cards multiple times. Usually the cashier will ask if you want to sign up for a rewards program during checkout. These types of cards involve setting up a credit line that offers promotional deals and cashback opportunities.

Retailer cards tend to be beneficial only when shopping at that specific store. Otherwise, their high-interest rates are not worth it.

Qualifying for Reward Programs

Different reward programs will have individual requirements for eligibility. These could be as simple as having an existing credit card with the affiliated credit union or bank, or there could be a credit score minimum to be eligible. To put yourself in the best possible position to qualify, here are some areas to consider improving:

  • Raising your credit score
  • Having zero outstanding debts on any of your cards

How to Rid Yourself of Debt

Getting rid of debt is an excellent way to improve your financial position, although many do not know how to start. With credit card debt in the tens of thousands of dollars and interest accruing monthly, the task can seem impossible. Unfortunately, there is no quick fix to rid yourself of debt. But there are ways to make progress.

The three primary methods involve different levels of risk. Take these into account when considering which option is right for you.

  • Increasing monthly minimums – Low risk – Credit cards will offer you a monthly minimum payment to pay off your debt. However, these minimum payments are designed to accrue the maximum amount of interest. Using a credit card loan payment calculator, you can determine what monthly rate you should be paying. It is recommended to at least double the suggested payment.
  • Debt consolidation programs – Medium risk – If the accruing interest is preventing you from shaving off your debt and you are committed to making monthly payments, debt consolidation programs (DCP)can be a lifesaver. DCPs work by paying off the debt in one lump sum with a loan and then offering that loan at a reduced interest rate. Instead of paying 20% APR, you might find a DCP that offers 3.99% APR. This is riskier because the fees for missing payments with DCPs will be detrimental.
  • Using additional credit cards – Medium/High risk – New credit cards will often come with low first-year introductory rates. By opening up new lines of credit, you can act as your own debt consolidation program. However, the risk is higher with this method because if financial trouble hits, you might be stuck with double your initial problem.

Finding the Right Credit Card Reward Program

The most important factor when deciding on credit card reward programs is identifying your own natural spending tendencies. If you are someone who is on top of their finances, pays off the total card amount each month, and never accrues interest, having multiple cards that maximize your benefits could be right for you. However, if you are struggling to maintain one card, you can still enjoy the benefits of a credit card reward program by using a general rewards card.

The content provided consists of opinions and ideas and should be used for informational purposes only. Mission Federal Credit Union disclaims any liability for decisions you make based on the information provided. References to any specific commercial products, processes, or services, or the use of any trade, firm, or corporation name in this article does not constitute endorsement, control or warranty by Mission Federal Credit Union.

Sources:

SSRN. Why Do Banks Reward Their Customers to Use Their Credit Cards?
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1719054

US News. Average Credit Card APR.
https://creditcards.usnews.com/articles/average-apr

Pew. The Complex Story of American Debt.
https://www.pewtrusts.org/en/research-and-analysis/reports/2015/07/the-complex-story-of-american-debt

Mission Federal. Loan Payment Calculator, Calculate Loan Payment.
https://www.missionfed.com/Calculators/Credit/LoanCalculator

Virtual Appointment

Open an account
with Virtual Appointment

Schedule Appointment
Mission Fed

Mission Fed

More Blog Posts

The Importance of a Savings Account for Rainy Day Situations

photo of a hand putting a one dollar bill in a glass jar full of money

A solid rainy day fund is perhaps one of the most important tools in developing and sustaining...

A solid rainy day fund is perhaps one of the most important tools in developing and sustaining financial security, and a good financial plan calls for saving money regardless of the interest rate environment.

Food 4 Kids Backpack Program Video—Donate Today

Graphic of Food 4 Kids Backpack Program

Help Mission Fed fight childhood hunger. Visit any branch in September to make donation to the...

September is Hunger Awareness Month, and Mission Fed is supporting the Jacobs & Cushman San Diego Food Bank Food 4 Kids Backpack Program. This program helps fight food insecurity by providing a weekend’s worth of food for children in...

We'll Help Guide You on Your Home Buying Journey

excerpt from infographic

If you’re thinking about buying a home, you’ve probably spent some quality time online absorbing...

If you’re thinking about buying a home, you’ve probably spent some quality time online absorbing all the internet has to offer a potential home buyer. The internet is a no-pressure, fun place to get started on your journey toward home ownership. But when it’s time to get...

What do you think about the cost of housing in San Diego?

Happy family in a home purchased with a Mission Fed loan.

Since the Great Recession, home values and rental rates have increased dramatically, impacting...

Since the Great Recession, home values and rental rates have increased dramatically, impacting affordability. With many publications showing the cost of housing in San Diego remaining between 40%-50% of net income for many households, it doesn’t appear we have...

Branch/ATM Locator

Search for Mission Fed Branches and ATMs, or 30,000 CO-OP Network ATMs Nationwide