About Rewards Credit Cards
How a rewards credit card works
Rewards credit cards allow you to earn points, miles or cash back when you spend on purchases. The amount of rewards you can earn and how varies widely from one credit card to the next.
For example, a travel rewards card may offer two points per dollar on travel but one point per dollar on all other purchases. One cash back rewards card may offer a flat 1.5% cash back on every purchase while another credit card offers 5% cash back in specific categories up to a quarterly maximum when you activate the categories. Some rewards cards have programs that change every calendar quarter, while others remain the same over time.
Choosing the right rewards card
The rewards card you choose should sync up with your normal spending habits and the kind of rewards you prefer. If a big portion of your monthly budget goes to gas and groceries, a rewards card that offers greater rewards in those categories can net you a greater rewards balance.
Remember, annual fees and other costs diminish the value of the rewards you earn. For example, on a 1% cash back rewards card with a $59 annual fee, you’d need to make at least $5,900 in purchases each year on the credit card just to cover the cost of owning it. If you don’t think you’ll average more than $500 in purchases each month, the fee will eat up your rewards.
Claiming your rewards
Rewards are only meaningful when they are redeemed. So think about how you’ll use the rewards before you choose a rewards card.
With some rewards cards, for example, you can redeem your rewards for cash back or a statement credit. While with other credit cards you can redeem your rewards towards travel, gift cards, merchandise or even donations to charity.
Some rewards cards assign an expiration date to your rewards. Others require a minimum amount of rewards before you can redeem. Understanding the rules for redemption can keep your rewards from going to waste.
Maximizing your rewards
First, use your rewards card strategically to maximize your rewards. Target your spending. Use the right credit card for the right purchase. You might use one credit card to pay your cell phone bill, for example, and a different one for grocery spending.
Next, use your rewards strategically. The actual value of rewards points or travel miles can vary based on the redemption. For instance, your issuer may value points or miles at one cent apiece when you redeem them for cash, but 1.5 cents apiece for travel.