As the credit card companies work harder to compete for consumer business, they are attempting to offer benefits that appeal to a broad range of borrowers. Some companies use promotional rates or transfer specials to entice card switching. Other card companies have turned to reward programs appeal to the needs to some borrowers.



Reward programs are designed to encourage card owners to make use of their credit cards by rewarding users for amounts used or specific types of purchases. Programs are designed in a variety of ways. Some are set up on a point basis, where users are rewarded with points based on the amount of credit used or specific products purchased. Other cards offer cash back incentives. For instance, a card may reward the card holder with a 1.5 per cent cash back bonus for each purchase made with the card.

Consumers need to consider their intent of use before agreeing to acquire a credit card. Most card companies offer a portfolio of products. Some products use promotional rates and specials to entice consumers, others use the rewards or incentive programs, others offer grace periods as a way to appeal to borrowers who want to avoid high interest charges. While borrowers with excellent credit may find a card that offers all these benefits, some people may have to pick the products that are most advantageous based on the highlighted benefits.

Points based rewards programs, or those that offer cash back rebates, are essentially intended to promote more use of the card. Credit card companies make money from retailers with transaction fees. By rewarding consumers for using their card, the card companies also generate revenue from the retailer transactions. This enhances the card company's sources of income.

Other card reward programs involve retail networks and special bonuses for buying from specific companies or buying specific products. Card companies sometimes negotiate with certain retail chains in order to set up a mutually beneficial network for consumers. The card companies promote special bonuses or rewards for consumers who buy from retailers within the card network. For instance, a typical 1 or 1.5 per cent cash back program may offer a 5 per cent reward for buying from a network retailer. This rewards the consumer, and also benefits the retailer due to increased demand, and the card provider because of the consumer interest charges and retailer transaction costs.

So are reward programs worth having? If you're a regular card user then you can certainly profit from what you'd be spending in any case, but be sure that the benefits aren't drowned out by interest charges on your borrowing.