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Use or lose those credit card rewards

Despite recent credit card reforms, there are still few regulations governing rewards programs. Here's what you should know.
Rewards cards — typically reserved for those with good to excellent credit — made up 88 percent of offers in the third quarter of 2009, up from 65 percent last year and 58 percent in 2007.Damian Dovarganes / AP
/ Source: The Associated Press

To sweeten credit card offers that come with annual fees, banks are increasingly promising richer cash rebates, airline miles and other rewards.

What isn't advertised is that banks can strip away those rewards for any number of reasons.

It could be you made a late payment or that your account was inactive for too long. The rules vary wildly but most programs have at least one catch that can result in a rewards wipeout. You may not even notice your points are disappearing if you're not looking.

Despite recent credit card reforms, there are still few regulations governing rewards programs. So as you consider new card offers, or look to make the most of current accounts, here's what you should know.

What to watch for
Expiration dates: It's common for rewards to expire after a set time. Bank of America and Citi, two of the country's biggest card issuers, allow five years to use your points.

That might seem like a generous window, except few cardholders are in the habit of redeeming points regularly. It's not clear how much value in rewards go unused every year. But only about a quarter of eligible cardholders say they redeemed points in the past year, according to the market research firm Synovate.

Knowing when your points are about to expire can be tricky too, since banks don't always give you any warning. So check your balance at least once a year to see whether it's time to cash in.

Inactivity, late payments: These are two other ways you can lose points. At Discover, for example, all rewards are erased if an account is inactive for 18 months or if you're late on a bill for two straight months.

The terms are slightly more lenient at Capital One, where you lose only the points earned during the billing cycle that a payment was late. On the upside, neither Capital One nor Discover set expiration dates on rewards.

Your rewards could also be held hostage for a late payment.

At Bank of America, you can't redeem your points if you're 60 days or more late on a payment. You also can't earn points, since you also lose charging privileges. Once you're current on payments, you get access to all your previously earned points again.

At American Express, you need to pay a $29 reinstatement fee to get back any points lost for the month you were late on a payment.

How to maximize rewards
Transfer to friends and family: If you're sitting on a cache of miles or points that are about to expire, check if you can transfer them to friends or family.

With airline programs, there's usually a fee of 1 cent per mile on transfers to another account. So it would cost $100 to transfer 10,000 miles. There also may be caps on how many miles you can give and receive.

The option is less common among general rewards cards. But Bank of America lets members transfer points to one another at no cost. Transfers have to be between 2,500 and 25,000 points, but you can make as many transfers as you like.

Donate: It's common to have the option to donate reward points or miles to charity. The breadth of options varies; American Express lets cardholders pick from a database of 1 million nonprofit groups while Bank of America cardholders can pick from about a dozen charities, such as The Humane Society and the Make-A-Wish Foundation.

Depending on the program, miles or points are sometimes converted into a dollar value for donation. For example, the Hilton HHonors Giving Back donates $25 for every 10,000 points.

Note that donated credit card points and miles generally aren't tax deductible because they're considered rebates on previously purchased goods, according to the Tax Institute at H&R Block.

Barter: Another option is, which lets members of participating programs swap points or miles. The site is still dominated by airline programs, however.

There's no sign-up fee, so it won't hurt to check out the options. But as with transfers, it costs about 1 cent per mile traded or transferred, depending on the program. So if you traded 10,000 American Airlines miles for 10,000 JetBlue miles, each party would pay a $100 fee.

You can't barter directly with other users. Instead, members list the trade they're willing to make. Another member can either accept the trade as is, or list a similar trade with terms they prefer.

Other uses: Even if you don't have enough miles for a free flight, check if there are smaller rewards you'd like such as a gift certificate, hotel room or rental car. Many programs, including general rewards programs, will also let you buy the extra miles or points you need if you're just short of a big prize.

Finally, be sure to redeem any rewards before closing a credit card account. Otherwise, they'll likely disappear.