By David Pilley on February 2, 2012
.jpg.aspx) Rewards cards are an example of a company giving back to its customers. With some charge cards or credit cards, people can earn “points” every time they make a purchase. An accrual of these points can be used for so-called “rewards,” most typically gift cards or airline tickets. Many cards have no limits on their rewards, so you might never have to pay for a plane ticket ever again! Of course, this is only the case if you make your monthly payments on time. The most well-known effects of late payments are extra fees, but credit card companies can also deduct points from your rewards program if you are late.
Because of the Credit Card Act of 2009, companies have had to become more creative in administering their penalties. Introducing the reinstatement fee! In some instances, after just one late or missed payment, a credit card company may freeze your rewards until you either get current or you pay a reinstatement fee, along with already-existing late fees. American Express, for example, will make your rewards available to you if you pay a $29 fee after a missed payment. Citi charges a $15 fee to reinstate your rewards.
Some companies are even harsher. With Bank of America, after you are late for 60 days, your rewards are frozen and inaccessible until you make your account current. If you have a missed payment with Capital One, you will lose rewards earned during the billing cycle of the missed payment. Chase no longer offers a rewards program (on most products), but when it did, its penalties were severe. After 60 days of nonpayment, Chase would take away all of your rewards, and they were not redeemable. (This harsh penalty, combined with customer dissatisfaction, may be the main reason why Chase no longer has a rewards program.) Finally, with Discover’s rewards program, customers will lose all rewards after missing two payment cycles.
Penalty on rewards earned is becoming more popular, now that there is more regulation in the credit card world. The most obvious away to avoid penalties is to make sure every payment is made on time! Many financial experts suggest automatic payment as a way to avoid late payment. While this is a good option for forgetful people, automatic payment involves being linked with a checking or savings account. You must make sure the stated account has enough money at the time of the automatic transaction, or you may get a double-whammy with lost rewards and an overdraft fee. Enduring penalties from a late payment on a rewards card is also a good time to reflect on your rewards plan. Are you satisfied with earning the occasional gift card or free airline ticket? Are you even planning on using the rewards? If you’re not a frequent flyer or user of gift cards, you might want to get rid of the account altogether. The “rewards” on a rewards card is geared toward certain clientele, so it might not be a good fit for you.
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