Rewards credit cards are a great way to stretch your dollar further. Depending on the card, you may earn cash back, points, or travel miles for each purchase you make. Choosing the best rewards credit card depends largely on your spending habits and your goals for registering for a rewards card.
Types of Rewards Credit Cards
There are three types of rewards credit cards you can choose from:
1. Cash Back Rewards Credit Card
Cash back cards reward you with a percentage of cash back on every eligible purchase you make. Each credit card has a different cash back system. Some cards offer a flat-rate cash back reward – for example, 2% cash back on every purchase. Some cards offer bonus categories that attract higher cash back rates.
Each time you make an eligible purchase with your cash back credit card, you receive a percentage of your purchase into your account. This varies depending on the cash back credit card you are using.
Different cards have different redemption processes. However, each issuer has a redemption portal that you can use to redeem your rewards for different uses. Some of the most common ones include:
- Direct deposits to your bank account
- Statement credits
- Gift cards
- Charitable donations
It’s always a good idea to read the fine print on the redemption process to ensure you get the best value for your money.
2. Points Cards
Points reward credit cards offer a number of points per purchase. Rewards cards that offer a points system also have a different value attached to these points. The value of points can also differ based on the intended use of the redeemed points.
Points offer more flexible redemption options including merchandise, gift cards, travel purchases, concerts, or sporting events.
Points are also flexible in their value, for instance, you might find a deal that allows you to redeem 20,000 points for a $200 purchase or another one that offers $400 for the same number of points.
3. Miles Cards
For those who travel a lot, a miles rewards credit card is a great option that allows them to redeem their rewards for flights, seat upgrades, and airport lounge access among others. The rewards are redeemable for travel-related expenses.
Miles cards allow you to redeem them each time you travel or need to spend on travel-related expenses such as booking a hotel. If you are loyal to a certain hotel or airline, you can use a branded miles card for even better deals.
Which is the Best Rewards Credit Card for You?
Choosing a rewards credit card is an individual task. You must decide on the benefits you want from a rewards credit card and identify the card that meets these needs best. Here are a few suggestions to help you choose faster:
- Choose a flat-rate cash back credit card if you use your credit card primarily to shop for everyday expenses like groceries, gas, and eating out. Such a card rewards you a fixed percentage of your spending each time you purchase something. If you have a more focused spending habit, you can go for a bonus category card that offers higher rewards on certain purchases. When going for this option, you will need to have a more targeted spending routine to get the maximum benefit from your card.
- Choose a miles card if you travel a lot. Whether you are going around the world for adventure or business, a miles card can help you offset some of the costs associated with traveling. You can choose from a general card or co-branded cards. If you are loyal to an airline or hotel brand, then a co-branded card is a good idea as it rewards your loyalty to that brand.
- A points card is a great option for those who want flexible redemption options. You can redeem a points card for different expenses including travel or cashback. Each redemption option offers a different value for your points, which is something you should be aware of each time you are redeeming your points.
When choosing any type of a rewards card, you should also research the annual fees, interest rates, foreign transaction fees, and signup bonuses to determine which card suits you the best.
Is a Rewards Credit Card for You?
Not everyone can get a rewards credit card. Most rewards credit card issuers have minimum eligibility requirements that applicants must meet to be eligible. These include:
- You have a good credit score. Most rewards credit card issuers require you to have a minimum FICO score of at least 690. If you have a higher credit score, for instance, an 811 FICO score, you are almost guaranteed to find the best offers of rewards credit cards due to your exceptional credit score. IF your credit score is below the 690 mark, you can look for additional information on how to fix insufficient credit history. Alternatively, you can find a rewards credit card that accepts those with a fair credit score.
- You spend a lot on specific categories. IF you use your credit card to pay for specific categories such as groceries, eating out, and gas, then a rewards credit card is a great choice for you. This ensures that you gain a little cash each time you spend on these categories. However, you should not overspend or buy unnecessary items just so you earn rewards. If you need to increase your budget to earn rewards, then a rewards credit card is not the right choice for you.
- You travel a lot. Travel can be expensive, whether it’s for leisure or business. IF you travel a lot, then a rewards card is a great way to buy additional flights or hotel rooms as you travel. It’s an even better option if you are loyal to a specific airline or hotel brand as you can get a co-branded card that lets you rack up rewards much faster.
If you have an above-average credit score, a rewards credit card can be a great option to stretch your dollar further. It allows you to earn cash, points, or travel miles for eligible purchases. When choosing a rewards credit card, keep in mind your current spending habits, your needs, and the costs and terms of a rewards credit card.
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