Saturday, January 12, 2008

Late payments will imprison or impose capital punishment on your rewards

You already know all the good reasons to pay your credit card bills on time, like maintaining or improving your credit score, avoiding ridiculous rate hikes and late fees, not to mention steering clear of unwanted notices and embarrassing phone calls from collection agencies. But there’s another reason you want to pay your bill on time, and that’s the access to your rewards you’ve earned.

Typically, credit card companies will not only restrict use of your card when your account is in past-due status (which prevents you from earning rewards points, let alone access to your credit line). In addition, your issuer will likely prevent you from redeeming the rewards you’ve already earned!

This ruling is often revealed in your card’s terms and conditions or program disclosures with language like the following examples:

Bank of America’s Worldpoints language: “To participate in the Program, you must (a) maintain a Card that is open and has charging privileges, and (b) be an individual (no corporations, partnerships, or other entities)”

Capital One’s language: “Your account must be open and in good standing in order to redeem, which means it isn't past due, overlimit, fraudulent, restricted, part of a consumer credit counseling program or in a bankruptcy settlement”

Citibank’s language: “To be eligible to earn and redeem [rewards], your [card type] account must be open and current and must not be in default. Citibank may revise or terminate the [card type] [Reward] Program at any time with 30 days prior written notice”

Even though these are your rewards that you’ve rightfully earned over months and years of using their product and paying your bill on time, issuers will invariably lock-up 100% of your rewards bank while your account is in past due status.

Here’s another sneaky catch to watch out for: Some card companies, like Capital One, will even revoke the points you earned in the billing cycle where you made a late payment! Their terms and conditions language is: “If a late fee is charged to your account, you will lose any miles applied to your rewards balance during the billing cycle containing the fee”. So, say you have a big charge like a $2,000 car repair that you throw on your card. Then you pay late that month – all of the points you earned on that charge, and all other charges in the month – they take away from you!

The moral of the story is, if you’re racking up points at a good clip or you’re planning to cash-in your rewards any time soon, make sure you keep your account in good standing (you should be doing this anyway)!

Note that there ARE a few exceptions to this rule. For programs like airline mile and hotel credit cards whereby points accumulated on a monthly basis are subsequently deposited into your airline or hotel loyalty program account, you will be able to access these rewards because they no longer reside with your credit card company.

Unfortunately, and by design, the credit card companies’ Terms & Conditions legal disclosures are less interesting than watching paint dry or grass grow. The reason the language is usually printed in gray 4 point type and includes paragraphs with no less than scores of lines bunched together is because they don’t really want you to read it, but the law says they have to provide those rules to you when you apply for a card.

To understand the various rules of your different credit cards or the cards you’ll apply for in the future, you need to familiarize yourself with this very important language. Hopefully someday, for everyone’s sake, we’ll all have a resource that can provide the “Cliff’s notes” versions in simple, plain English!

Until then, consider your T&C’s a great cure for insomnia.


1 comment:

Anonymous said...

We need that easy to understand language today. The idea that you can lose all your points by having a late charge is very upsetting. Is it legal? We need some way to better understand how our credit card rewards programs work.