You’re ready to sign up for a new credit card that seems to promise a host of appealing rewards. But are you sure about what the card really offers or how it compares with other options? Many people are not, according to a J.D. Power survey, which found that only 59 percent of credit card customers feel they "completely" understand how they earn rewards. Another one-third knew nothing about the benefits related to their credit card. The Pennsylvania Institute of Certified Public Accountants (PICPA) advises consumers to look more closely at their benefits—and terms—to get the most from their credit card choices.
Consider the Value
When you receive a promotional credit card mailing, review it carefully to be sure that what’s offered is really worthwhile to you. A card that promises free trips or airline upgrades won’t benefit you if you don’t travel often or if there are many restrictions and deadlines on when you can use the rewards. On the other hand, if you spend a lot of time on the road for work or pleasure, the rewards on a gas station card might be right for you. If the card offers the chance to earn gift certificates to national chains, consider how often you make purchases at those places. You may find your best option is to consolidate spending on one card that offers cash back for purchases or other rewards you will use.
Know the Limits
Are you aware of the requirements for earning rewards? Some department store cards feature immediate discounts on purchases, but future rewards may not kick in until you’ve done a great deal of spending at the store. Cash back programs may involve caps on rewards for some types of spending, or higher rewards for spending on things such as restaurants, gas, or groceries.
Understand the Terms
While it’s useful to know about, and take advantage of, credit card rewards, it’s critical to understand the card’s terms before you sign up for one. In the J.D. Power survey, only 47 percent of people surveyed said they "completely" understood their credit card terms, though 73 percent were uncertain about the card’s interest rate and 31 percent were not sure about late payment fees. Failure to learn about those terms could be costly. If you don’t pay off your charges every month and carry a balance going forward, you will face ever-increasing monthly interest payments if you have a high-interest-rate card. In fact, after the first month, you’ll be paying interest not only on your purchases but also on the interest you are charged each month. That means it will take longer—and cost significantly more—to pay off your balance. If you think you will carry a balance, it may be best to look for a low- interest rate card, even if it offers few if any rewards. Similarly, watch out for cards with high late payment fees to avoid getting penalized if you face a financial hurdle or simply forget to send your check. For more information, the U.S. Consumer Financial Protection Bureau offers a glossary of credit card contract definitions.
Given the many cards available—and the multitude of rewards, rates, and requirements for each one—don’t sign up for an account on impulse. Compare the pros and cons of the most appealing options so you can make an informed choice.
Consult Your CPA
No matter what your financial question, your local CPA can provide the advice you need. Turn to him or her with all your financial concerns. To find a CPA in Pennsylvania by location or area of expertise, visit www.ineedacpa.org