Credit cards are a great tool for building a strong credit history but if you frequently spend on your card, as opposed to simply using cash, you should make sure that you are maximizing the benefits by using a card that offers great rewards too. Rewards-based credit cards can give carriers some pretty awesome benefits depending on the type of card and the affiliate partners involved. Of course, the cards that yield the best rewards are often those that are also only available to consumers with very good credit scores (ie 750 or higher). Interchange fee gets sliced dramatically.

When you have a great rewards-based credit card, you can be certain that you will be able to take advantage of some significantly remarkable benefits that you simply won’t find anywhere else. Sometimes the rewards are based on travel so the benefits might include things like discounts on hotel stays or airfare. Sometimes the rewards are based on other consumer categories like groceries and gas and will either offer discounts on these things or will earn the highest points when you buy these things; points that you can then redeem later for cash rebates, among other things.

While all of this probably sounds like a very good idea for most consumers, the average consumer may not actually benefit from a rewards based card because it is important to pay the balance off in full every month. Doing this ensures that you minimize your finance charges and interest payments, which can eventually cancel out the benefits you receive for being such a big spender. If you can budget your money so that you will be able to pay off your charges in full every month, you will definitely reap the most rewards from your credit card.

Indeed, Gerri Detweiler, director of consumer education at Credit website agrees. She says that’s always the trap for the card holder:

They’ll get so excited about earning rewards that they charge more than they can afford to pay off in full, in which case rewards can become very costly, very quickly.

The other half of this is that rewards-based credit cards often carry higher interest rates than basic cards that offer simple (or no) benefits. Thus, carrying a balance every month will quickly earn more interest; and the same goes for annual fees.

The recent $7 billion consumer credit settlement with Visa, MasterCard, and a handful of other major banks, however, could change the entire infrastructure of rewards credit cards. In turn, then, this could reduce the kinds of competitive benefits that many consumers have enjoyed for years. Because of the way this settlement restricts interchange fee charges from banks, retailers will be able to choose what kinds of fees they charge. In the end, then, this limits the profits that the credit card issuers make, which provides less wiggle room in terms of offering rewards and other benefits.

Credit card expert Bill Harkeopf is concerned about this. He says

If the credit card interchange fee gets sliced dramatically, that can affect the rewards that credit card issuers can offer.

He attests that banks used to make a lot of money on these interchange fees so by limiting them they will not be so willing to attach the same generous rewards consumer have come to expect.

This settlement was developed to protect consumers from outrageous interchange fees so consumers need to understand exactly what to expect as these changes fall into place. It is not yet certain exactly how or when consumers will experience the effects of the changes and because large retailers like Target and Wal-Mart oppose the settlement, consumers could expect even more legislation in the future.