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 don’t know what kind of rewards you want. And even if you do know what kind of credit card rewards you want, are you sure you’ll even use them? A 2021 survey by our sister site, Bankrate, revealed that 31% of people didn’t redeem their credit card rewards in 2020.
Once you choose, apply for and open a rewards credit card account, here’s how to make the most of your rewards and rack up the benefits.
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, you’re encouraged 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 credit cards earn consumers a percentage of their purchases back to their accounts, usually 1% to 5%. They can be redeemed for statement credits, checks or even gift cards and are best suited for cardholders who want immediate rewards in their accounts.
- Points-based rewards credit cards accumulate points with each purchase, typically 1 to 10 points per dollar spent, depending on the category. Chase Ultimate Rewards and Amex Membership Points are among the most common points that can be earned with credit cards and can be used to book travel, buy experiences, convert to cash and more. Points are extremely flexible and are popular with consumers who want to spend their rewards in multiple categories.
- Miles rewards credit cards are used largely by jet-setting consumers. Each purchase made with the credit card accumulates anywhere from 1 to 10 miles (depending on the category), which are redeemed for airfare or transferred to the issuer’s partnered airlines for tickets.
The value of points, miles and cash back
When you earn rewards on a credit card, you might wonder how much points or miles are worth. With cash back, it’s easy to calculate that getting 5% on a $100 purchase is $5. But when accumulating tens of thousands of points or miles, the valuation gets a little tricky. Here’s what standard miles and points are worth:
|Points or miles accumulated||Redemption method||Value||Total value|
|10,000 points||Cash back||1 cent||$100|
|10,000 miles||Airfare/travel||1 to 2 cents||$100 to $200|
|50,000 points||Cash back||1 cent||$500|
|50,000 miles||Airfare/travel||1 to 2 cents||$500 to $1,000|
How to get the most from rewards credit cards
You may receive offers in your inbox or through the mail targeting you to sign up for an issuer’s credit card. While it may seem appealing, the card’s rewards program may not line up with your spending habits.
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
Rewards 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 when 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 among 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. Target your spending
After narrowing down the cards you’re using, try to put as much of your spending on one rewards card as possible to maximize the rewards program value. It’s not going to do 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 put certain expenses on your card, use the rewards card first.
To keep your card balance and budget under control, make weekly card payments online to avoid facing a surprise at the end of each billing cycle.
4. Cancel less rewarding cards
Carrying and charging purchases on several rewards cards could dilute the value of your rewards as your spending is spread across multiple categories. Trim down your wallet to one or two high-earning cards.
For starters, cards with annual fees and higher interest rates should be evaluated carefully to see if they are worth keeping. When adding a new rewards card and closing others, cancel the cards carefully so as to not negatively impact your credit score. Don’t close a ton of cards at once, and consider keeping one or two of your oldest cards open.
5. 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.
6. 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, 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.
How to calculate credit card rewards
Once you have a rewards credit card and racked up some points or miles, what are they worth? Let’s say earning 40,000 miles means you can redeem them for a $400 airline ticket. Here’s what one mile is worth:
- $400 / 40,000 miles = $0.01 per mile
With that same example, let’s say it only takes 20,000 miles to purchase a $400 airline ticket. Here’s what each mile would be worth in that scenario:
- $400 / 20,000 miles = $0.02 per mile
In the first calculation, your purchases earn 1% back in the form of miles, or in the second case, 2% back in miles. Some card issuers even offer 10 miles per dollar when you spend in certain categories.
If you have a rewards credit card, there’s no reason not to use the points or miles you’ve accumulated on your account. When choosing a new rewards credit card, pick one that’s tailored to your top spending categories, whether that be dining, groceries, shopping, travel or gas. Using a credit card that rewards you in categories where you don’t normally spend is an unwise way to use credit. Instead, get the most out of your credit card by being selective about which ones you’re adding to your financial arsenal to earn points, cash back or miles.