Credit Card Rewards

This is a guest post from Mr. Credit Card, who reviews credit cards and provides updates and opinions on the latest credit card and financial developments. Follow him on Twitter.

There are few things that really stir up the personal finance world more than the topic of being cheap. In my area of expertise, whether paying fees for a credit card make sense or not is hotly contested. Today, I'm going to explore this issue and suggest that paying fees for credit cards may not be such a bad thing.

But first a brief history of credit cards.

In the early days of Diners Club and American Express, there wasn't such a thing as credit cards! There were only charge cards, which required (and still requires) an annual fee.

Plus, you also had to pay in full. Only folks with good credit and income were able to get one of those Diners Club or Amex cards.

Since the deregulation of the financial industry in the '80s, the credit card industry has boomed. It also boomed because banks decided to market their credit cards and be more of a processing company.

This deregulation resulted in lots of banks offering credit cards with no annual fee and actually giving consumers a "line of credit," allowing them to carry a balance. As competition grew, these no annual fee credit cards began to offer rewards like cash back. For folks who pay their bills in full, the concept of paying for an annual fee seems ridiculous. But I would like to propose that paying annual fees for credit cards can be justified in certain cases.

Airline Rewards Credit Cards

To encourage loyalty, airlines have frequent flier programs and they often also have their own credit cards (user are presumably frequent flier members themselves).

These cards normally charge an annual fee that can range from $45 to $150 or more. The perks that come with these airline credit cards include the ability to earn double miles when you buy an airline ticket with the card, annual miles bonuses and annual companion tickets. Frequently, there is a big sign up bonus as well which makes the card worth getting despite the annual fee.

For folks who are not frequent fliers, the concept of paying this annual fee seems silly. But frequent fliers know that earning points just from credit card spending is simply a great way to get free airline tickets.

Secured Credit Cards

Secured credit cards are different from regular cards in that you have to put a deposit down with the credit card issuer (which usually earns interest).

Your credit limit is normally the deposit that you put up. Secured credit cards also charge annual fees, but there are good reasons to get one.

The primary reason for getting secured credit cards is that if you do not have a credit history, you will never be approved for a regular credit card. Secured credit cards allow someone with no credit history to build credit easily. It also gives new immigrants a chance to establish a credit history in this country. In addition, for folks who have just gotten out of bankruptcy, it gives them a chance to reestablish their credit history and scores.

Other than these two broad examples, I agree with the notion that for most people, getting a credit card with no annual fee makes the most sense. If you are not a frequent flier, then getting a basic cash back credit card with no annual fee but still gives cash rebatesmakes a lot of sense.

But even if we were forced to, annual fees may not be such a bad thing

Here is the thing. Even if we all returned to the good old days of charge cards, I am not too sure that is such a bad thing.

For one, we would not have issued credit to folks who should never have been issued credit. We might have to pay annual fees, but at least we'll get rewards and if we are forced to pay in full, that is actually a good thing.

When you are searching for a credit card, do not dismiss cards if they charge any annual fee. Instead, ask yourself the following:

You might be surprised to find that a credit card with an annual fee may be a better fit for you. This would be equivalent to you choosing a savings account with a lower interest rate, but with better features that would work better for you.

Credit card reform has finally taken place. Recently the government has imposed a series of laws and practices in the hope of protecting consumer interest. But with every sliver of good news, there tends to be a bit of bad. In this case, the negative comes in the form of credit card reward programs becoming less rewarding for cardholders.

If your FICO score is under 620, brace yourself. Tempting offers for are going to be far and few between. Freebies will vanish, your interest rates will spike and you will have reduced credit lines. Only those who have taken the steps to properly establish their credit history will barely notice the change. In general, those changes may include some of the following things:

Less Rewards

If you got used to earning three points for every dollar spent on your card, expect it to revert back to a one-for-one basis. Banks earn interchange fees for each signed merchant transaction and that money offsets the reward programs.

Instead of reducing those front-end numbers, the back end is being tweaked and lighter reward programs are the result.

Primed for Success

After the recent credit and mortgage debacle, credit card issuers are less willing to take risks. Issuers are seeking customers who either have prime (FICO range 700-749) to super prime (FICO 750+) status. Those guys will get the best reward program offers, while the rest will struggle to find truly great card offers.

Annual Fees

Until recently, no annual fee reward credit card offers were plentiful. However, declines in consumer spending have left issuers with budget gaps that must be filled. That dollar amount will be passed on to consumers and annual fees are just one way of doing so.

New Fees

Consumers can expect additional fees not legally restricted by credit card reform. Those who do not actively use their cards may get hit with "inactivity fees" or if you are a less than perfect with your payment, your rewards points may be forfeited.

Less Point Packed Punch

Point values are set to decline. What used to cost you 50,000 miles may cost you 75,000 now as card issuers are making redeeming points more challenging to hedge their potential losses.

If you are concerned about losing the perks associated with your credit card, it is imperative that you review every piece of correspondence from your card issuer to ensure you stay on track. Additionally, by taking simple steps now to improve your credit score, you can up your status and get yourself back to a position of being rewarded.

@citi_forward just let us know that they and ExxonMobil Personal Card are giving away a $2,000 cash prize a day to one card member daily - or the equivalent of 1 year's worth of gas! The contest runs until the end of June, so you only have a few more days to qualify.

Consumers are...

Despite the recent decline in gas prices, the rumor mill predicts that when OPEC finally manages to lock in the $80-$90 range per barrel of oil, gas will once again rise and eventually settle into the $3 range. Why not prepare now for this future inflation and secure a gas back credit card to...

If you have a favorite retailer, or you constantly find yourself out at the mall making purchases, you may want to explore the benefits of retail rewards credit cards . Retail credit cards give you various rewards for making purchases of retail goods. Sometimes those rewards are tied to specific...

When credit cards were first introduced, they were issued by merchants and had a pretty standard set of features. These days, the range of credit card deals you can get is staggering. With all the different interest rates, reward programs and fees available to you, its important to understand...

When choosing a credit card, youll read a lot of advice about how to find the cards with the best interest rates and fees. If you maintain a balance on your cards, these will undoubtedly be matters of concern for you. But what if you are the kind of solid citizen who pays their bills in full...

No matter your situation, there are a wide range of credit card deals to choose from with different features, rewards programs, and interest rates. If you are a small business owner or executive, you might find that a business credit card suits your needs and helps you take care of business...

When credit cards were first introduced, they were issued by merchants and had a pretty standard set of features. These days, the range of credit card deals you can get is staggering. With all the different interest rates, reward programs, and fees available - its important to understand the...

Credit card users may be noticing some alarming trends with their current reward credit cards.

Not only may consumers see their interest rates go up and their credit limits go down but the perks that originally lured them to sign up for a particular card may no longer be as enticing as...