With virtually all credit card issuers offering rewards, the issue is not whether you should get a rewards card, but what type of rewards card is best for you
With so many credit card rewards programs available, you might have decided that you want in on the action, but aren’t sure which card is the best rewards credit card for you.
It can be a confusing marketplace, with cards flashing cash back, points, miles and other incentives. You also have to weigh basic factors like fees and interest rates. With so much to consider, it might be tempting to simply pick one and hope for the best.
But that strategy can have you missing out on hundreds of dollars in rewards value each year. With some simple research and forethought, you can rest assured that you’re getting maximum value from your rewards card.
What are rewards credit cards and how do they work?One great reason to use your credit card is to reap the rewards, whether in the form of cash back, points or miles.
No matter which type of rewards your card provides, they all encourage you to use that card; as your credit card balance rises, so will your rewards balance. That’s a benefit, as long as you aren’t overspending and carrying a balance to earn rewards.
Cash back is a favorite because you simply get rewarded with a percentage of your eligible purchases at the end of your statement period.
Some cards offer a flat-rate cash back reward, meaning that you might get 1% to 2% back on every purchase.
Other cards offer a flat rate and bonus rewards categories, under which you can earn more for expenditures such as gas, groceries or dining out, plus you get the flat rate of cash back on everything else you buy. For example, you might earn 2% to 3% cash back on groceries and 1% back on everything else.
Additionally, some cash back cards offer rotating bonus categories that change each quarter. Examples include Chase Freedom Flex℠ and Discover it® Cash Back, both of which offer 5% cash back in quarterly bonus categories, up to $1,500 in combined quarterly spending after you activate (then it’s 1%).
You can redeem your cash back rewards at the end of your statement period in a number of ways, depending on the card.
You can typically request a check for the amount (or even ask for a direct deposit to your bank account), you can use them to buy gift cards and make purchases or you can redeem them as statement credits to pay down your balance.
In addition, a few issuers allow cardholders to transfer their cash back to hotel and airline programs or book travel through their own programs.
If your credit card rewards you with points, that means it might give you a set number of points for every dollar you spend – or you might accrue fewer rewards for your first purchases during the year and more once you reach a certain dollar amount.
Each issuer has its own rules, but generally, you can redeem your points for merchandise in the program’s online shopping portal or for cash, discounted gift cards or airline tickets.
A few issuers also enable customers to invest their rewards – for example, the Fidelity Investment Rewards Signature Visa card deposits them in an investment account.
No matter what type of rewards you earn with your credit card, it’s a bonus.
Always make sure you keep track of what you’re earning and take care to redeem your rewards in the way that works best for you.
See related: 6 worst ways to redeem credit card rewards
How to get the most from rewards credit card points
“When considering a rewards card, the most important issue is to put some thought into it,” says Scott Crawford, co-founder and vice president of product and marketing at Ascend Consumer Finance. “You can look at something online or get an application in the mail that seems like the best thing ever, but if it doesn’t fit what you’re interested in, then it just won’t work for you. Like if you have an airline miles card, but if you don’t fly much, that isn’t a really good deal.”
Similarly, if you have a card that rewards you points for your purchases, but you don’t remember to redeem them, the rewards program isn’t worth much.
So here are the seven tips you need to keep in mind when adding a rewards card to your wallet:
1. Align rewards with your interests.
Reward card programs come in many different forms – generally allowing you to accumulate points toward merchandise, gift cards, travel miles or points, or cash back – so it makes sense to align rewards with your interests and goals. If you’re hunkering down and trying to budget your income better, you might choose a card that offers cash back toward such basics as shopping at your favorite grocery store or filling your gas tank. If traveling is your thing, an airline miles credit card for an airline that flies out of your local hub may do the trick.
Just don’t pick a rewards program that you aren’t likely to use. Also, be wary of rewards that end up enticing you to spend more money than you can afford in exchange for a sign-up bonus.
2. Cash back is king.
Cash back rewards cards give you the most basic currency available – cash – to spend as you like. According to a 2019 CreditCards.com survey, 3% cash back on all purchases is the favorite credit card reward of U.S. consumers. The “cash” can be applied toward your balance, redeemed for purchases, deposited into your bank account or even mailed to you by check.
3. Compare the reward offer with others.
A major mistake many consumers make is to add a credit card to their wallet on impulse, says Crawford. “I used to work in credit card marketing, and it’s amazing how little thought people put into getting a credit card offer. I would say that most credit card decisions tend to be made on impulse.”
Instead of making a spur-of-the-moment decision, take a few minutes to compare the offer with similar credit card offers online, as well as with the rewards terms of the cards currently in your wallet.
Know that most travel rewards cards come with an annual fee. Sometimes that fee is waived in the first year, but if you’re not racking up and redeeming enough miles or points, the annual fee can negate the value of the rewards. “You can destroy all the value of your rewards card even with a modest annual fee,” Crawford says. On the flip side, there are more cash-back card offers that don’t carry an annual fee.
See related: Cash back vs. points: Which is better?
4. Dump less rewarding cards.
If you’re carrying several rewards cards, you may be diluting the value of your rewards by rotating charges across them all instead of focusing all your spending on one card that rewards you the most. Cards with annual fees and higher interest rates should be evaluated carefully to see if they are worth keeping. If you are going to add a new rewards card and dump others, cancel carefully so as to not negatively impact your credit score. In other words, don’t close numerous cards at once, and consider keeping one or two of your oldest cards open.
5. Target your spending.
Once you’ve narrowed down the number of cards you’re using, try to put as much of your spending on that card as possible to maximize the rewards program value. It’s not going to do you much good to have a great rewards card if you don’t use it. Of course, you don’t want to spend money you don’t have just to get rewards, but if you typically do put certain expenses on your card, put those on the rewards card first. That way you’ll get the most bang for your buck.
To keep your card balance and budget under control, you may want to make weekly card payments online to avoid having to face a surprise at the end of each billing cycle.
6. Know when your rewards points expire.
Be sure to check the fine print in your credit card agreement or on the rewards card’s website to see if and when your particular rewards expire. Rewards earned from major issuers’ cards typically don’t expire, but you could lose them if your account is closed or is not in good standing.
See related: Unused points and miles: You have options
7. Keep track of changes in terms.
Credit card issuers are notorious for changing terms. When they do so, they have to notify you. But that notice may come in the form of fine print within a dense letter. As tedious as it may be, you should read all communications from your credit card issuer. A change in rewards terms, such as getting fewer points or a lower percentage of cash back, is something that will typically be disclosed in such a notice.
If a change in reward terms is material, you can always start the process of looking for a more beneficial card again, provided you have managed your other cards well and you have a good credit score.
Updated March 31, 2021