Credit card applicants partial to loyalty schemes


Reward schemes have become increasingly important to consumers when shopping around for credit cards, according to new research by Sainsbury's Credit Cards. The company's latest study suggests that a significant proportion of people focus on the quality of loyalty schemes when comparing different cards.


Here, takes a look at the research and highlights a couple of important things to consider when applying for a rewards credit card.

Loyalty schemes 'top factor' for many
The Sainsbury's Credit Cards research shows that loyalty schemes are becoming more common, with 34.4% of credit cards now offering this type of incentive, compared with just 30.8% of cards in 2010. Consumers are also starting to recognise the potential benefits of these cards, with 28% of respondents to the Sainsbury's poll citing loyalty schemes as the most important factor when choosing between credit cards. In contrast, the desire to make a balance transfer (26%), find a lower APR (23%) or seek a new 0% purchase card (15%) featured lower down people's priority lists.

"We're encouraged by the sign that more of us are shopping around for a credit card that rewards our custom. But with so many different cards to consider, it's easy to become overwhelmed," says Stuart McKeggie, head of Sainsbury's Credit Cards. Mr McKeggie says that people should ensure they choose a credit card that suits their particular card usage. For instance, the best credit card deal for someone who wants to be rewarded for shopping may not be the most suitable for a person who wants extra benefits, such as travel insurance.

Watch out for high APRs
Another important factor to consider is the APR, say experts. Sometimes the benefits of a rewards credit card can be cancelled out by a high interest rate, which can be particularly harmful to those who do not pay off their balance in full each month. People in this situation may be better off considering a credit card that offers 0% on purchases for a limited period, as this will give them longer to pay off their balance before incurring interest.

Temptation to overspend
One final note of caution: An impressive loyalty scheme should never be regarded as an invitation to overspend. Research by economists at the Federal Reserve Bank of Chicago suggests that even a small reward such as 1% cash back leads customers to spend more and increase their overall debt. Regardless of the rewards on offer, making purchases with a credit card still amounts to borrowing, and cardholders could find themselves spiralling into debt if they fail to keep an eye on their spending habits.

See related: 5 questions you should ask before signing up with a new credit card provider; Credit card interest rates climb higher

Published: 6 April 2011