Choosing a rewards credit card

With millions of cards in circulation the credit card industry has become extremely competitive and to attract more and more customers the companies have started offering various reward programs with their credit cards. 50 percent of all credit card offers in 2003 had some sort of reward component, according to direct-mail tracker Mintel's Comperemedia.

The range of reward credit cards available in the market at present is mind boggling. Capital one's "Go Miles" Visa lets you rack up miles without airline restrictions or blackout dates. For every dollar spent, you earn one mile, and for every 9,000 miles you earn $100 toward a plane ticket. American Express Hilton HHonors Platinum offers three points for every dollar spent, five points when you spend it at a Hilton property, and you can start redeeming for a free hotel stay after you spend between $1,500 and $2,500. You can use your points at 2,500 Hilton properties, and the card has no annual fee. Citibank Dividend Platinum Select pays 5 percent back on all gas station, supermarket and drugstore purchases and 1 percent back on everything else.

Choosing the right one depends on how much you charge each year and what kinds of purchases you make. The trick is to utilize the benefits of the card to the maximum. If possible don't sign up for more than two reward cards. Charging on multiple cards can prevent you from earning substantial rewards. With some cards you need to spend a lot before the full reward kicks in. But there is a catch in rewards credit cards available. Even though most of these cards do not charge an annual fee these cards tend to carry a high annual percentage rate (APR). The typical reward-card APR is now about 14 percent, four points higher than the average credit card's. For this reason, sign up for a reward card only if you plan to pay off the balance each month. Otherwise, the rewards are dwarfed by the interest costs attached to the card.

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