What is a rewards credit card?

A rewards card gives the cardholder something back for each purchase, usually a percentage of the purchase amount as cash back, miles, or points. You can sometimes earn bonus rewards by spending a certain amount in the first few months you have the card, too. You can then redeem the rewards, usually for merchandise, statement credits, gift cards or travel. Generally, your rewards will be available to use after you see them tallied up on your online account or monthly statement.… read full answer

There are 3 kinds of rewards credit cards, and each is valuable to a certain type of lifestyle. But most rewards cards give at least one rewards unit per $1 spent. That can add up to 1% back or more, depending on the redemption method and credit card.

Cash back credit cards give a percentage of your purchases back to you as a statement credit, check, or bank deposit. Some cash back credit cards have set tiers for rewards - they’ll give 2% back at gas stations and 3% back at restaurants, for example. Others have rotating categories for different levels of cash back, which usually change once per quarter. The good thing about cash back is that it can’t be devalued by credit card companies, like miles or points can.

Points credit cards usually give at least 1 point per $1 spent. Typically, you can expect to redeem points for travel, merchandise, cash back, or gift cards. Many points credit cards also allow you to redeem for a charitable donation or for tickets to special events. Hotel credit cards are usually points credit cards, too. If you stay at that particular hotel brand a lot, there are often many bonus points and loyalty perks to be earned on those credit cards.

There are a lot more redemption options with points than cash back, but that doesn’t mean all points redemptions will be equal. Points are worth more with some methods than others. Credit card companies could make each point worth 1.25 cents when redeemed for gift cards and 1 cent when redeemed for cash back, for example. This can make it hard to pin down how much a point is actually worth.

Miles credit cards are made for travelers, obviously. In fact, many airline credit cards give rewards as miles. Most credit cards that give miles will also allow you to redeem for cash back, merchandise or other things, but redeeming miles for travel will usually give you the best redemption value. Like other rewards cards, you’ll generally get one for one - one mile per $1 spent. And like credit cards that give points, you’re also subject to devaluation with miles. The card issuer can decide that all your earned miles are worth half as much as they were when you earned them.

Overall, rewards credit cards work best when you get the one that’s right for your spending habits and lifestyle. So it’s worth reading a credit card’s reward redemption terms before you apply for one. One thing to watch out for is that some rewards credit cards have thresholds for redemption, meaning you need a certain amount of reward credits saved up to redeem them. And you definitely want to redeem your rewards often, especially if you’re earning miles or points, because those units can be devalued anytime.

Yes, rewards credit cards are worth if you won't have to spend extra to earn the rewards. The best rewards credit cards are worth more than $2,000 in savings for the average person over the first two years of use, after annual fees. But you need good or excellent credit to get the most worthwhile rewards cards.… read full answer

Things aren’t as clear-cut for people with lower scores. In addition, rewards credit cards are only worth it for purchases that you can afford to pay off fully by the due date each month. Credit card interest rates are much higher than credit card rewards rates, so it’s best to use a low interest card for balances that you’ll carry from month to month.

Here’s how to choose a rewards credit card:

When determining if a rewards credit card is worth it or not, you have to weigh the worth of the rewards against the cost of the card. If the rewards card has no annual fee and you plan to pay the bill in full every month, it’s pretty easy to decide the card is worth it. However, you’ll often get the best rewards and biggest signup bonuses from cards that do have annual fees. In that case, you just have to crunch the numbers to make sure you’ll get your money’s worth.

Regardless of which rewards card you choose, be sure to understand how you can earn rewards most efficiently. Some cards have higher rewards rates for specific categories, and some give a flat rewards rate that you earn on all purchases. The fastest way to earn credit card rewards is through signup bonuses. Many of the top rewards cards come with signup bonuses that you can get for meeting a minimum spending requirement in the first three months. The signup bonuses are usually worth several hundred dollars, enough to cover the cards’ annual fees for years. And you can get them for spending money you were already planning on spending.

The biggest pros and cons of rewards credit cards are savings with every purchase and extra secondary benefits, on the positive side; and the potential for devaluation and earning caps, on the negative side. Rewards credit cards can be lucrative when used with precision. But they can also end up costing more than they benefit you if you pick the wrong card or carry a balance from month to month.… read full answer

Rewards credit cards are known for offering 1% to 5% back on most purchases, often supplemented by an initial rewards bonus potentially worth hundreds of dollars. Many rewards credit cards also have $0 annual fees, and some even provide the opportunity to save on finance charges with 0% APR periods.

But rewards cards have their pitfalls, too. Although cash back is straightforward to redeem, there can be a minimum redemption amount, depending on the card. Points and miles, on the other hand, have different redemption values from card to card. To add to the general confusion surrounding rewards programs, credit card companies can change the value of a point or a mile anytime they wish - and usually they don’t increase the value.

Credit card rewards can also expire based on any criteria the card issuer decides, including account inactivity, a missed payment, or simply after a certain period of time. That’s why it’s important to read the card’s terms and conditions before applying.

Biggest pros and cons of rewards credit cards:

Overall, rewards credit cards are mostly a good deal, as long as you use them responsibly by not spending more than you can afford to pay each month. It’s important to pay your bill in full every month, because any money saved in rewards can be negated easily by paying interest.

Devaluation is a problem with points and miles, too, so redeem your rewards often to decrease the chance of having them become less valuable. And if you get a rewards card with an annual fee, make sure the perks outweigh the fee.