No-Fee Cards - Rewarding, But Seldom Free

from Dana Dratch

If you want to play the rewards game to win, you also need to know the rules. Before you sign up for a card, here are some questions to ask:

What's the annual percentage rate? If you pay off your balance in full every month, theoretically the APR shouldn't matter. But 75 percent of credit card holders don't always pay off the card every month.

And many times, the APR on a rewards card is not as a good as the rate you'd get on a no-frills card. And you want to know whether that's the permanent rate or the teaser rate.

In addition, many banks will pull your credit report every so often and adjust your rate accordingly. The potential impact: A late payment on another bill could increase the APR on your rewards card.

What's the grace period? Pay your bill late and the bank could ding your credit or raise your interest rate. So how much time do you have to pay it on time? And what's the fee if your payment arrives after the buzzer? Since a late fee or two can add up to more than an annual fee, sometimes a card with an annual fee and a longer grace period is really a better deal for you and your credit score.

And what happens to your points if your payment is late? Some cards will ask you to forfeit your points that month or freeze your points until you pay a penalty fee, says Robert B. McKinley, CEO of CardWeb.com, a site that tracks the payment card industry.

Which rewards program makes the most sense for you? What is it you want to earn and which program gives you the best chance of getting it?

How do you redeem your reward? Be very specific. How long do you have to wait before you redeem your points or cash? Do you have to accumulate a minimum of points or be in the program a certain length of time? How long before your reward points expire? What do you have to do to redeem the reward? (Some cards let you redeem points online or transfer points to other rewards programs, which can make redemption very easy, says McKinley. But if you transfer points, you might not get a one-to-one exchange rate.)

Is there a cap on the reward? Some cards will pay rewards only up to a certain amount and then cap the reward. So if you plan to keep charging, switch to another card if you want to rack up more awards points.

What are the restrictions? If you are using your rewards to plan a trip, find out about all the restrictions and blackout dates.

How likely is it that this program will still be around when you're ready to claim your prize? McKinley once had his eye on an African safari offered by one card-rewards program. "When I finally had enough points, it wasn't in the catalog," he says. McKinley went to Paris instead.

Bottom line: Rewards programs can be altered or discontinued with very little notice. Some cards, for instance, will change their points structure or cap how much you can accumulate. Other programs, like a Ford rewards card, are discontinued entirely.

"There's very little consumer protection in these programs," says McKinley. "If you're worried about that, think one year out -- two years max."

What is the reward really costing you? If you're paying nothing for the card, paying off the balance in full every month and earning free baseball tickets, a rewards card is a good deal. If you slip up and end up paying a couple of late fees or finance charges on the balance, measure that cost against the prize you're earning. Would it have been cheaper to buy those goods or services outright?

People should watch out for what they are getting vs. what they could get," says Jennifer A. Kingson, senior editor at American Banker, a daily newspaper for the financial services industry.

Keep in mind, just because a card offers no annual fee doesn't mean it's automatically the best deal for you. Sometimes for-fee cards offer a more.

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This article was written by Dana Dratch, BankRate.com Staff Writer.