While some view the credit card market as a minefield, others have wisened up and learnt to play the game to their advantage
Michael Cheng and his wife, Nicole, each have four credit cards in their wallets. A Post-it note on the top left corner of each card lets them know which one to use for what.
The Chase rewards card is for groceries, gasoline and drugstore purchases. The Chase business card is for gas stations, home improvement and office-supply stores and restaurants.
The Discover card is for restaurants and movies. The Farm Bureau Bank card is for everything else.
In return for their purchases, they get checks or gift cards - 5 per cent cash back from the Chase rewards card, 3 per cent from Chase business, 5 per cent from Discover and an amount equal to 1 per cent from the Farm Bureau.
Reaping the benefits
The Chengs, who have a stack of other cards, keep track of the cash rewards on a spreadsheet: They made $1,121 in 2006 and $1,093 so far this year. They don't pay interest on their purchases because they immediately pay off their balances. And they pay no annual fees.
"We get the sense that we figured out how to play the game and we're playing it our way," said Nicole Cheng, 43, of Centreville, Virginia, USA.
That game is played by so many that there are numerous web sites such as cardweb.com, credit-reviews.com and creditcardgoodies.com that rate the programmes and provide venues for cardholders to seek and give counsel.
Some of the most avid users are those who get cash back, a segment of the industry that has grown rapidly in recent years.
If you're going to play the rewards game, beware - the credit card issuers are certainly up to the challenge, several consumer advocates said.
"There's a small number of people who can game the system, but for every consumer who games the system there's probably 25 consumers who are raking up credit card debt and never are redeeming the rewards," said Ed Mierzwinski, Consumer Program Director for the US Public Interest Research Group.
Be prepared to spend a lot to make a lot - or a little. So far this year, the Chengs have spent $47,800 to get $1,093 in rebates. "Mind-boggling," Michael Cheng, 42, admits.
Discipline's the key
The only way to make the rewards cards rewarding is to be disciplined. Card issuers divide their clients into two categories. Transactors pay off their balances each month; revolvers carry balances.
If you're a revolver, don't bother with a rewards card. Whatever you earn is not going to make up for what you pay in interest. The cards with the best rewards tend to have higher rates.
"If you carry a balance on your credit card, a 1 per cent reward does not in any way offset a 15 to 25 per cent APR," says Mierzwinski. "For consumers who carry balances, they rationalise that at least the reward is cutting it a bit, but you're much better off getting the best rate you can."
Be sure to understand the rules, consumer advocates and credit card experts said. Many people don't. In a survey conducted last year by Braun Research of Princeton, New Jersey, one-third of 1,000 cardholders surveyed said they either don't read or don't understand the fine print contained in credit card offers they receive by mail.
Read the fine print
"The big print giveth and the small print taketh away," said John Ulzheimer, President of Consumer Education for credit.com.
Many card issuers reserve the right to void rewards if a payment is late, and they can limit the amount of cash or number of points redeemable. Or they might require that the rewards be redeemed within a certain time frame.
Sometimes, rewards can be hard to claim, particularly airline miles.
Working hard to entice customers, card issuers have increased the number of rewards programmes. They have also gotten more creative with the programmes.
Take the Citi Home Rebate Platinum Select MasterCard. Cardholders can use the points to pay down their mortgages. For big spenders, the recently launched Sotheby's MasterCard offers a helicopter tour of California's wine country or the use of a Sotheby's auctioneer to conduct a charity auction of your choice.
If you're a college student, you can earn points for having a good GPA and redeem them for plane tickets, CDs and other gifts. And with gas prices skyrocketing, credit cards that offer cash back at the pump are popping up almost everywhere.
"There's just about a reward for everything you might want there to be a reward for," said Bill Hardekopf, Chief Executive of lowcards.com.
How many does Warren Wilkins have? "I don't even know," said Wilkins, 69, a retired lawyer who lives near Richmond, Virginia. He believes he has six to 10, but actively uses three. "It's great to pick up $1,000. It's just a freebie," says Wilkins.
Not as generous
Credit card experts and consumer advocates said some card companies are not as generous as they used to be or are making the programmes more complicated. Gone are the days of 5 per cent cash-back deals.
Now, 1 per cent cards are more the norm. Other companies have created tiered programmes as a way to encourage spending, giving a higher percentage of cash back the more the consumer charges to his card.
Citigroup, for example, cut rewards earned by holders of the Citi Dividend MasterCard to 2 per cent from 5 per cent. American Express slashed rewards points by half for everyday purchases at gas stations, drugstores, supermarkets and other places.
"It seems that a lot of the issuers maybe were taken aback that so many cardholders were maximising the rewards and the banks were losing money on them," said Joseph Ridout, a spokesman for the advocacy group Consumer Action.
Card company representatives say the cardholders who do not keep balances will not necessarily hurt a programme. "We don't look at it from the individual customer level but we look at it overall as a programme, is it something that is maintaining profitability?"
said Raja Rajamannar, Executive Vice President of Citi Cards.
Mark Shipley, Senior Vice President and Global Practice Leader for Loyalty Solutions at MasterCard, said cash-back programmes are not what they used to be.
"Cash-back used to be easy," says Shipley. "They are getting more and more complicated today."
Rewards can be changed or suspended without much notice, but Shipley said card companies are cautious when altering their programmes.
"You're dealing with your best customers and we're really trying to go over the top to create a very happy experience," comments Shipley.
Ulzheimer of Credit.com has another warning for overly enthusiastic cardholders: Too many requests for new lines of credit can hurt their credit scores.
Too many not too good
"What I've seen in many of these cases, consumers will at their own peril apply to so many credit cards that they end up costing themselves more in the long term," he said.
If anything, think about this. Someone is paying the price for your financial gain, consumer advocates said, and that someone is everyone. Card companies make money off the rewards cards by charging merchants fees. The merchants then pass the costs of the fees on to all consumers by raising prices.
"Somebody pays for rewards and the people who pay for rewards are actually people who shop and don't use credit cards," says Mierzwinski.
