{"id":10989,"date":"2010-01-12T20:02:28","date_gmt":"2010-01-13T00:02:28","guid":{"rendered":"\/\/www.askmrcreditcard.com\/news\/?p=10989"},"modified":"2010-01-12T20:02:28","modified_gmt":"2010-01-13T00:02:28","slug":"the-evolution-of-reward-cards","status":"publish","type":"post","link":"https:\/\/www.askmrcreditcard.com\/news\/the-evolution-of-reward-cards\/","title":{"rendered":"The Evolution Of Reward Cards"},"content":{"rendered":"

I have been catching up with some old friends lately, and I have been trying to explain reward cards and loyalty programs came to be.<\/p>\n

In The Beginning…<\/strong><\/p>\n

Have you ever been to a dry cleaners or a sandwich shop that hands out a loyalty card.\u00a0\u00a0\u00a0 The idea is that when you make so many purchases, you get a reward, typically a free product or service.\u00a0\u00a0\u00a0\u00a0 From the consumer’s standpoint, it is something for nothing, while from\u00a0 merchant’s standpoint, it has been shown that consumers will return to earn their award rather than try a competitor.\u00a0\u00a0\u00a0 In 1981, American Airlines was the first major airline to apply the same principal to air travel.\u00a0\u00a0\u00a0 In this case, the passenger ear miles towards a free ticket.\u00a0\u00a0\u00a0\u00a0\u00a0 One mile was earned for each mile flown.\u00a0\u00a0\u00a0\u00a0 To this day, it is a mystery to me why they chose Statute Miles<\/a> over the world standard Kilometers, or the aviation standard, the Nautical Mile<\/a>.\u00a0 \u00a0 Indeed, South American Carrier LAN actually does use Kilometers. \u00a0\u00a0 What might have made the most sense was earning points based on dollars spent, but since when have the major airlines ever been accused of trying to make sense?<\/p>\n

Later, airlines started offering ways to earn miles without leaving the ground.\u00a0\u00a0\u00a0 Credit cards were an obvious way to this.\u00a0\u00a0\u00a0 Merchants have been in the credit card business for a long time.\u00a0\u00a0 My parents like to tell the story of their first credit card from Sears, sometime in the late 60s or early 70s, that had a credit limit of $50 or so.\u00a0\u00a0\u00a0 Later, my parents used their credit history to obtain a card at\u00a0 the gas station, before finally getting a standard credit card.\u00a0\u00a0\u00a0 How quaint.\u00a0\u00a0 Not long after frequent flier programs began, airline branded credit cards were offered that earned miles, typically one mile per dollar spent.\u00a0\u00a0\u00a0 As the dollar lost value to inflation, miles earned through credit cards became much easier to earn.\u00a0\u00a0\u00a0 The value of the dollar decreased substantially since the 70s while the world stayed the same size.\u00a0\u00a0\u00a0 All I need to do now is find a credit card that offers a frequent flier point per Zimbabwe Dollar<\/a> that I spend, and I should be earning around the world flights on my lunch break!<\/p>\n

At the same time, airlines began offering miles through travel partners such as hotels and rental car companies.\u00a0\u00a0 Eventually, you had the opportunity to earn miles on just about any purchase from the Home Depot to hair loss treatments.<\/p>\n

Today<\/strong><\/p>\n

It is far easier to earn miles with a credit card or an airline partner than it is to step on a plane.\u00a0\u00a0 For example, you could take a last minute flight from Washington Dulles to Roanoke Virgina for $470.\u00a0\u00a0\u00a0\u00a0 You will only earn 177 miles from the flight itself, but you could earn at least 470 miles or points with your credit card while you pay for the flight.\u00a0 That is an extreme example.\u00a0\u00a0 A more common example would be a flight from Denver to Atlanta.\u00a0\u00a0 It is 2,400 miles round trip, and an advanced purchase fare is often around $300.\u00a0\u00a0\u00a0 So you are earning 8 miles per dollar spent. \u00a0\u00a0 Many shopping partners offer similar or more mileage per dollar spent. \u00a0 Credit cards typically offer a single point or mile per dollar spent on anything.<\/p>\n

For very frequent fliers, they will probably earn more mileage in the air than on the ground.\u00a0\u00a0 I am talking about people who travel at least two or three times a month.\u00a0\u00a0\u00a0 Even then, they can earn tremendous mileage with partners, enough to outstrip their actual BIS (Butt In Seat) miles.\u00a0\u00a0\u00a0 For the rest of us, we can now earn thousands of “frequent flier” miles without ever leaving the ground.<\/p>\n

More Than Just Miles<\/strong><\/p>\n

Of course, along with miles came other loyalty programs and point schemes.\u00a0\u00a0 Hotels and rental car companies got into the act with similar programs.\u00a0\u00a0 Credit card companies started offering their own point schemes as well as the most attractive option, cash back.\u00a0\u00a0\u00a0 Every time you use your credit card, the merchant has to pay 2-4% of the purchase price to the credit card processor.\u00a0\u00a0\u00a0 Your bank is using a percentage of those funds as a bribe to entice you to use their card.\u00a0\u00a0\u00a0 Currently, the best cash back cards give you 2%, a pretty substantial rate of return.<\/p>\n

Simply put, if you are not utilizing reward cards, you are leaving a lot of money on the table.\u00a0\u00a0\u00a0 With a basic 2% cash back card, someone who spends $30,000a year ($2,500 a month) is earning $600 in rewards.\u00a0\u00a0\u00a0 Since the rewards are merely a discount on your purchases, they are not taxable.\u00a0\u00a0\u00a0 Think of it like a $1,000 a year pre-tax raise on your salary.\u00a0\u00a0\u00a0 Savvy reward card users can find rewards out there worth 4 cents on top of every credit card dollar spent, or even more.<\/p>\n

The Most Important Part<\/strong><\/p>\n

The whole idea of earning reward points and miles with a credit card is predicated on the idea that you will ALWAYS be paying your credit card balance IN FULL and ON TIME.\u00a0\u00a0\u00a0 Failing to do so means that you have lost the reward card game, as the interest and late fees will always <\/strong><\/em>exceed any reward.<\/p>\n

My Advice<\/strong><\/p>\n

Read this blog and others.\u00a0\u00a0\u00a0 Learn the ways of reward cards and you can profit greatly from your everyday spending habits.<\/p>\n","protected":false},"excerpt":{"rendered":"

I have been catching up with some old friends lately, and I have been trying to explain reward cards and loyalty programs came to be. In The Beginning… Have you ever been to a dry cleaners or a sandwich shop that hands out a loyalty card.\u00a0\u00a0\u00a0 The idea is that when you make so many […]<\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[3],"tags":[],"yoast_head":"\nThe Evolution Of Reward Cards<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.askmrcreditcard.com\/news\/the-evolution-of-reward-cards\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Evolution Of Reward Cards\" \/>\n<meta property=\"og:description\" content=\"I have been catching up with some old friends lately, and I have been trying to explain reward cards and loyalty programs came to be. 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