How to determine which is the best reward credit card for you

By Ben Woolsey

The concept of paying customers rewards for using a credit card was initially launched by the AT&T Universal Card, which offered no annual fee (novel for the time) and cash back on all purchases which could be applied toward your phone bill. Following soon thereafter was the Discover Card, which pioneered the concept of paying cash back to the credit card holder at the end of each year based on the total amount of credit card charges. Since these early examples, reward credit card offers have become rather common with many offering eye-popping deals of up to 5 percent cash back. Discover credit cards still command the strongest market share for the cash back market but there are many options offered by the major Visa and MasterCard issuers.

Credit card rewards that pay you points for your spending are now seen as a cost of doing business for credit card companies necessary for gaining the business of people who tend to put most of their purchases on credit cards and tend to pay off their balance each month.

The best way to find the reward credit card program that best suits your needs is to examine your spending habits. If you don't pay off your balance each month a reward credit card probably won't offer the best interest rate available, since they are more expensive for the banks. However, if you pay off your balance in full each month and merely use a credit card as a payment tool a reward credit card is a great way to get paid for spending.

The next thing to consider is what form of "currency" you wish to earn for your purchases. Rewards credit cards most often pay 1 point per dollar spent on the card but the redemption options for those earned points is where things differ. Many offer a shopping portal where you can redeem your points for merchandise, airline tickets or even cash. An example of this type of card is the American Express Blue Card. Others give you automatic gift certificates good for items on their site, such as the Citi Diamond Preferred Rewards Card , where 5,000 points equal a $50 gift certificate. An added incentive often involves earning more points per dollar spent if shopping with the partner company itself.

Banks have partnered with hundreds of major companies, including airlines, hotels and retailers to offer points which can be redeemed toward that partner company's products. So the key to finding the perfect card is to look at where you shop and which rewards credit card could pay you the most points from your normal shopping and spending patterns.

Published: November 23, 2005

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