A Change in Thinking



When cash back credit cards were introduced to the market, they were warmly received. Three out of four credit card holders are still primarily concerned about obtaining a credit card with a low interest rate or a 0.00% introductory APR, but the demand for cash back credit cards remains strong.

The Target Market

Credit card companies hoped to draw in large numbers of new cardholders when they introduced the cash back credit card - and the strategy worked. As time has gone on, however, more people have started to realize that the best candidates for cash back credit cards are those that pay off their balance at the end of each billing cycle. This is because cash back credit cards tend to have higher APRs than credit cards that do not offer special programs. Therefore, you will probably pay more in finance charges each year than you earn from the program if you do not pay off the balance in full at the end of each billing cycle.

The Evolving Percentage of Rewards

When cash back credit cards were first introduced, they simply offered a flat percentage rate of return. With most cards, this rate was 1% and the rebate was sent to the customer at the end of the year. This practice, however, became too costly for credit card companies. Therefore, they began introducing earning structures. With these structures, cardholders earned back a fraction of the original 1% on their purchases for all purchases below a specific amount. Often, this specific amount was $2,500 each month. The form of determining rewards continues with most cash back credit cards today.

Breaking the Mould

Although many cash back credit cards follow a strict earning schedule, some of the best cash back credit cards are still quite generous. The Citi Dividend Rewards MasterCard, for example, provides cardholders with a 5% return on purchases made at gas stations, grocery stores, and drug stores. All other purchases receive a 1% cash back return - and there are no caps on how much can be spent, and earned.

Keeping You Organized

Cash back credit cards have also changed to make keeping track of the money you earn. Many cash back credit cards simply print the amount of money earned back onto the billing statement each month. Some will send the money automatically after it reaches a certain amount or at the end of the year. Yet others require cardholders to call to order a check after the earned cash reaches a certain threshold.

Beware, however, that some cash back credit cards are not quite as simple to understand and to follow. Some can be a bit confusing because the credit card company does not show the amount of money earned on the billing statement and does not specify how much is earned for certain purchases. Sometimes, you will have to contact customer service in order to find out how much money you have earned up to a certain point.

If you are somebody that is not very organized, you might want to take advantage of a cash back credit card that automatically sends a check to you and that keeps track of your earnings for you. Credit card companies that require cardholders to call to request their checks are counting on your forgetfulness and hoping you will never ask for your check. Of course, this results in greater profits for the credit card company and leaves you without the reward you have earned. So, be sure to know yourself well enough to take full advantage of the rewards offered by cash back credit cards.