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From the time we're children Skee-Balling for tickets at Chuck E. Cheese's, we learn that earning rewards is both expensive and time-consuming. You want that giant Batman plush doll behind the counter? You're going to have to party hard all year round. Credit card rewards follow a similar model. The standard return rate hovers around 1% back on most purchases. That means after charging $1,000 to your card, you've earned only $10.
Just like the kid who squirrels away his tickets to one day cash in for a magnificent top-shelf prize, credit card reward earners save points until they have enough for big redemptions. If you want free international flights or free stays at five-star luxury resorts, that's going to require time and discipline. But how would you feel if, just before redeeming, you lost your points in a tragic turn of events?
Despite the many protections now guaranteed to credit card consumers, you don't truly own your rewards points. They can be stripped away in the blink of an eye. Don't let your hard-earned vacation to Luxembourg vanish in a poof of negligence. Here are five ways you can lose your credit card rewards and how to prepare for the worst.
1. You close your account
Remember, you don't own your points. If you close your credit card account, those points don't go with you. Cash out before getting rid of the card or you will lose everything you earned over the lifetime of your account.
2. You neglect your card
Some credit cards will penalize you for inactivity. If you go too long without using your card, you may lose your rewards. Therefore, hiding your card at the bottom of the junk drawer is not a viable alternative to closing your account. If you want to stop using your card, harvest the rewards first.
3. You violate your cardholder agreement
Don't get sly with the credit card company. Trying to find loopholes and exploiting rewards categories may land you in hot water. If the credit card company thinks you're abusing the rewards system by using the card in a way it was not intended to be used, they may be within their rights to close your account and deny you your rewards. Read the fine print and play by the rules.
4. You fail to make payments
You don't earn rewards as soon as you charge a purchase. You earn rewards as soon as you pay off that purchase. So if you don't pay, you don't get rewards. In addition, some credit card issuers have written in their terms the ability to withhold rewards if you don't make payments on time. Throw late fees into the mix, and failing to pay your bills is a rather costly prospect.
5. Your rewards program changes
Unlike the other items listed here, you don't have control over whether your rewards program changes. You may suddenly find your redemption options just got a lot more expensive. This happened recently at a few major hotel chains, when points were devalued and cardholders were left with a less than they thought they had. This is why saving enormous amounts of points is dangerous.
The basic guidelines to retaining your rewards are (1) play by the rules, (2) keep an active account, and (3) don't be a hoarder. For many people, redeeming frequently with a simple cash-back card is the best way to guarantee you receive the full value of your points. There is some risk associated with saving up for huge redemptions. You never know when the giant rat is going to up the price of that rad electric drum kit by 20%.