Whether it is the supermarket where you buy your monthly groceries or the club where you have a membership or your favorite brand of clothing, they all try to woo their customers with reward points. Reward points are a way to encourage customers to stay loyal to the brand or store by offering some benefits which they collect as a result of shopping at a particular brand outlet.
Similarly credit card companies offer reward points to their customers in order to encourage them to continue using the same card and if possible use it more!
Though reward points should not be a primary concern while opting a credit card they do hold some monetary value. Be sure to redeem your points on time and make the best use of your card.
What is a credit card ?
A credit card is a payment card issued to users (cardholders) as a method of payment. It allows the cardholder to pay for goods and services based on the holder's promise to pay for them. The issuer of the card (usually a bank) creates a revolving account and grants a line of credit to the cardholder, from which the cardholder can borrow money for payment to a merchant or as a cash advance.
A credit card is different from a charge card: a charge card requires the balance to be repaid in full each month. In contrast, credit cards allow the consumers a continuing balance of debt, subject to interest being charged. A credit card also differs from a cash card, which can be used like currency by the owner of the card. A credit card differs from a charge card also in that a credit card typically involves a third-party entity that pays the seller and is reimbursed by the buyer, whereas a charge card simply defers payment by the buyer until a later date.
Planning your reward point spending
Gaining reward points is not enough. One needs to plan wisely for spending the reward points to gain the maximum benefits. After you have a vacation plan ready, decide on which parts of the vacation you would like to cover using the reward points.
It is broadly divided into travel fare, hotel stays and dining out. For example, if you decide to book the flights using your credit card, check on how many miles it would take to avail the reward. But don't ignore the airline service and other things which can potentially spoil your mood for vacation.
For booking stays, check on the properties around your vacation spot. Once shortlisted, check on how many points it would take to book the stay reward. It is difficult to cover the entire vacation expense through reward benefits. But spending them wisely will definitely help in saving a good amount of money.
Rewards points are offered for every rupee you spend when you swipe your credit card. One rupee spent is not equal to one reward point. This depends on the credit card company policy and the card type; thus the same company may offer a different reward structure for different card variants it offers. These rewards points can be exchanged for one of the options that the company offers; these options can be in the form of vouchers, waiver of fees, and contribution to a charity or a gift.
The customer has to choose from a pre-decided list that the company has.
If you have a credit card variant that offers one reward points for every Rs 100 spent then by spending Rs 1,00,000 you will accumulate 1000 points. Depending on the reward you choose these 1000 points could be worth Rs 500-1000. Thus when you spend Rs 1,00,000 you get a reward worth Rs 500-1000.
Credit card companies take a fee that is called an interchange fee from the merchant establishment; apart from this the annual fee or interest paid by the card holders on delayed payments are the main source of income for the credit card companies.
A part of the earnings mainly from what is taken from the merchant establishment is passed on to the customers in the form of reward points.
What should you know about reward points?
When you apply for a credit card that offers reward points do look at their charge structure.Cards that offer reward points usually charge higher rates of penalty on delayed payments which makes the card expensive in case of a default when compared to a normal card.
If reward points are not used within a stipulated time period they may expire; check with the credit card company about their policy on reward points.
So how important are reward points?
Reward points should not be considered as a primary factor when choosing a card. Always remember these points should be considered as an auxiliary benefit you derive due to using your card or staying loyal; reward points should never become an inducement to spend more.