What type of user can best use rewards cards?

Rewards cards are credit cards that give rewards to customers who shop heavily with their card. These rewards can take a number of forms.

Rewards cards work because of the merchant fees that credit card companies charge shops or service providers for accepting and processing the card. Many shops are happy to pay merchant fees because a customer with a credit card has access to more money than a customer who only has cash. Customers are also more likely to make impulse buys with a credit card than with cash. A rewards card can be seen as a way of sharing the merchant fee with the credit card user, and there are a number of ways this is done.

How a rewards scheme works varies within the credit card market. However there is a core principle to all rewards schemes. If a person spends some money using a credit card then that person will be awarded a number of points. When they get enough points they will be able to redeem them for a reward.

Traditional rewards schemes work through a catalogue, which is provided to the credit card holder from which he or she can choose the desired rewards. In the catalogue, the number of required points is listed next to each item. With the rise of Internet access and email, these catalogues have become more flexible and the rewards offerred change more frequently.

Rewards cards tend to carry some of the higher fees and higher interest rates, to offset the shared merchant fees and to cover the cost of administering the programs. For this reason, these traditional types of rewards programs are best suited to a person who spends a lot on a credit card yet also pays the entire balance every month.

Some rewards cards are now brand specific, in that they will be associated with a consumer brand such as a department store or an airline. These can have generous rewards schemes, as the company is often willing to allow its loyalty card users access to its surplus products at a deep discount or even at no charge. An example of this is an airline that offers seats on its less popular routes or flights as a reward. As these cards sacrifice flexibility for value, these will tend to suit a credit card user who is already a heavy consumer of that brand.

There are also personalised rewards and cash back credit cards. These credit cards also best suit a person who routes many payments through their credit card, but pays off the balance in full every month.