5 Mistakes to Avoid With Rewards Credit Cards

The best secured credit card with rewards is the Discover it® Secured Credit Card because it has a $0 annual fee and offers 2% cash back at gas stations and restaurants (up to $1,000 spent each quarter combined), and 1% back on all other purchases. Plus, Discover matches your cash back earnings from the first year. 

Best Secured Credit Cards with Rewards

Rewards are among the few factors that you should consider when choosing a secured credit card, along with the annual fee and the minimum deposit requirement. Paying an annual fee just to get rewards only makes sense if the amount you'll earn exceeds both the fee and your expected earnings with a cheaper card combined. 

By the way, all of these cards report to the credit bureaus on a monthly basis, giving you the chance to build credit with on-time payments.

The best way to open a new rewards credit card is to start by checking your credit score and comparing the rewards credit card offers that you could reasonably expect to get approved for. Then, after finding the best rewards card for your needs, apply for the card online or over the phone. If you apply online and clearly meet the card's approval requirements, you could have your new rewards card account open within minutes of starting the application.

How to Open a New Rewards Credit Card

1. Check your credit score for free.
2. Pick the best rewards credit card for you, based on your credit score and spending habits.
3. Apply online for the fastest decision. If you'd prefer to apply over the phone, call the card issuer's customer service line.
4. Provide your date of birth, SSN, U.S. mailing address, and other information.
5. Submit the application.

Applicants usually get a decision within 7-10 business days, but a lot of credit card companies will tell you immediately if you've been approved. If you're denied, you should expect a decision within two weeks, and the card issuer will also send a letter to explain the denial. Denied applicants can call the card issuer's reconsideration line or apply for a different card with lower requirements for approval.

Each credit card company has its own rewards program. And each credit card rewards program has a unique reputation. Some are known for good customer service. Others are notable for offering rewards cards to people with less-than-good credit. You can find the latest rankings in WalletHub's annual Credit Card Rewards Study, which reviews major credit card rewards programs based on earning potential, eligibility, transparency and more. The study also includes scores and rankings for individual cards.

Given that your ultimate goal should be to find the single best rewards card for your needs, your focus should be more at the card level than the issuer or rewards program level. The quality of a rewards program matters in the sense that it impacts what you can redeem your earnings for and how much they're worth when you do. But a credit card's core terms – annual fee, rewards earning rates, etc. – are what matter most.

With that being said, the first step in choosing the right rewards program is asking yourself this question: Do I rack up 30,000+ airline miles or 20+ hotel nights per year?

If your answer is “yes,” get one of WalletHub's best travel rewards credit cards. Most people will be better off with a card that's equally rewarding no matter where you book travel accommodations. But if you always fly with the same airline or stay at the same hotel chain, it's worth at least considering that company's credit card.

If you answered “no,” we recommend getting the best cash back credit card for your spending habits. Credit card companies can easily devalue points/miles by increasing the number that you need to redeem for certain items. That makes saving them up for infrequent redemption a bit risky. But issuers can't play the same games with cash. Cash back rewards also give you versatility in that you can redeem earnings for any type of expense by getting a statement credit.

You can redeem your credit card rewards online, through the issuer's mobile app, or over the phone, depending on the card. The most common credit card rewards redemption options include cash back, travel purchases, and gift cards. 

Once you redeem your credit card rewards, they'll be subtracted from your rewards balance immediately. If you wish to redeem your rewards for a statement credit, it will generally be credited to your account within 2-3 business days, depending on the card. In some cases, rewards will expire if you do not use them by a certain time. 

Types of Credit Card Rewards

• Points: Credit cards that offer points generally give at least 1 point per $1 spent on purchases. You can redeem points for hotel stays and other travel expenses, statement credits, gift cards, or merchandise, depending on the card. Points cards are sometimes affiliated with hotel chains.
   
  Credit card points are worth an average of 1 cent apiece, depending on the card and the redemption method.
• Miles: Credit cards with miles are travel oriented, often affiliated with a specific airline. Rewards typically start at 1 mile for every $1 you spend on purchases. Miles can be redeemed for airfare, other travel expenses, gift cards, cash, or merchandise. Cards co-branded with a particular airline may reward you with seat upgrades, early boarding on flights, free checked bags, and more.
   
  Miles are worth an average of 1 cent each. The value varies based on the airline or credit card rewards program as well as how the miles are redeemed.
• Cash Back: Credit cards with cash back rewards return a portion of each purchase cardholders make, usually at least 1%. You can redeem cash rewards as a check, direct deposit to your bank account or statement credit, depending on the card. Some cash back rewards can also be redeemed for gift cards and merchandise through the issuer's online rewards portal.

How to Redeem Your Credit Card Rewards Online

1. Log in to your online account. Specifics will vary by issuer, but your rewards will usually be featured on a main account page.
2. Click on your rewards balance. Once you click on your rewards balance, you'll be taken to a page with more information about your redemption options.
3. Select how you'd like to redeem your rewards. You may be able to redeem your rewards for travel purchases, cash back in the form of a check or statement credit, merchandise, or gift cards, depending on the rewards card.
4. Redeem your rewards. Once you redeem your credit card rewards, the points, miles, or cash back will be deducted from your rewards balance immediately. If you're redeeming for statement credits or covering past purchases, your account will usually be credited within 2-3 business days. If you redeem your rewards for gift cards or merchandise, you can expect them to arrive in the mail within 2-3 weeks.

While many rewards cards will let you choose from multiple redemption options, you'll usually get the most value with one in particular. For example, travel rewards credit cards will often give you the most value when you redeem your rewards for travel purchases. Also, your rewards may be worth less if you redeem them for cash back or gift cards.

On average, credit card rewards are worth 1 cent per point or mile. Most major credit card issuers (like Chase, Capital One, and American Express) advertise that your rewards will not expire as long as your account remains open and in good standing. But you should check the exact terms and conditions of your specific credit card to make sure you don't lose any rewards you've earned.

To maximize your credit card rewards, start by comparing credit card offers to make sure you have the most rewarding cards for your spending habits. Then, use whichever card has the highest rewards rate for the purchase category whenever you buy something, and pay the cards' bills in full monthly to avoid interest. Finally, redeem your rewards regularly in order to maximize your enjoyment.

That's how to go about it at a high level. Of course, there's a bit more involved in maximizing your credit card rewards, and you can see the details in the step-by-step list below.

How to Maximize Your Credit Card Rewards

1. Get a card with rewards that match your spending habits.

   It's important to find a card that fits your lifestyle. For example, there's no point in investing in an airline credit card with a hefty annual fee if you fly only once a year. Rather, if you're a frequent traveler, dine out regularly, or spend a lot on groceries, for instance, find a rewards card that will pay you extra for those purchases. Or, if you want something less complicated, get a card that pays a flat cash back rate on all of your purchases.

   Below, you can see some of the top rewards card options available right now.

   • Overall: Chase Freedom Unlimited®Chase Freedom Unlimited®Learn MoreLearn Moreon issuer's website
   • Rates & FeesNo Annual Fee: Wells Fargo Active Cash® CardWells Fargo Active Cash® CardLearn MoreLearn Moreon issuer's website
   • Travel: Capital One Venture X Rewards Credit CardCapital One Venture X Rewards Credit CardLearn MoreLearn More
   • Rates & FeesTerms ApplyBonus Cash Back: Blue Cash Preferred® Card from American ExpressBlue Cash Preferred® Card from American ExpressLearn MoreLearn Moreon issuer's website
   • Fair Credit: Upgrade Cash Rewards Visa®Upgrade Cash Rewards Visa®Learn MoreLearn Moreon issuer's website
   • Bad Credit: Capital One Quicksilver Secured Cash Rewards Credit CardCapital One Quicksilver Secured Cash Rewards Credit CardLearn MoreLearn More

2. Use multiple cards to get the best rewards.

   This is known as the Island Approach. For example, if you have a card that earns 5 points per $1 spent on gas, you could use that card primarily for gas purchases and put your groceries on a card that offers a high rewards rate at supermarkets.

   On the other hand, if you have a card with a big spending requirement for an initial bonus, you might want to focus your purchases on that card until you qualify for the bonus.

3. Pay your balance in full.

   When you keep a balance on a rewards card, interest charges may cancel out any rewards you earn. If you're after financing options, check out WalletHub's editors' picks for the best low interest credit cards.

   Avoid any late or missed payments, too. Not only will a late fee further eat into your savings from rewards, but you could end up forfeiting any rewards you've earned altogether.

4. Know each card's rewards terms.

   In addition to understanding when exactly you will earn rewards and how quickly those rewards will be credited to your account, it's important to make sure any spending requirements for sign-up bonuses are attainable. Also, familiarize yourself with the card's ongoing rewards and redemption rates. Rewards come in three main currencies: cash back, points, and miles. Cash back is straightforward, but points and miles can be redeemed for many things, including cash, gift cards, merchandise, charity donations and more. Rewards points and miles often have different values when redeemed for different things, too.

5. Redeem often.

   Try redeeming miles or points periodically rather than stockpiling them. Rewards generally don't expire as long as your account is in good standing, but in some cases, you could lose earnings if there's no activity on your account. And if you close your account, you will lose all of your unredeemed rewards. Plus, if you have points or miles, the issuer can devalue them at any time.

6. Redeem for the most valuable option.

   Rewards cards, particularly points and miles cards, often have multiple redemption options. For example, you might be able to redeem your rewards for cash back, travel, gift cards or merchandise. Some cards may offer different redemption values for different options – for instance, a point may be worth 1 cent toward travel and 0.5 cents toward cash back. Therefore, to maximize credit card rewards, you should redeem for the most valuable option.

7. Take advantage of initial bonuses.

   Some credit cards offer bonus rewards for spending a certain amount within the first few months. If you get a card with this type of bonus, you should make sure to spend enough to qualify, provided that it doesn't make you overspend by more than the value of the bonus. The best time to get a card with a big initial bonus is right before you're about to make a big purchase, so you can earn the bonus quickly and offset some of the cost of the big purchase with your rewards.

You can learn even more about credit card rewards and how they work on WalletHub. You can also compare the best rewards credit cards to find one that's a good option for you.

Yes, rewards credit cards are worth it as long as you don't overspend just to earn the rewards and you avoid interest charges by paying your bill in full every month. 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.

You need good or excellent credit to get the most worthwhile rewards cards, however. Things aren't as clear-cut for people with lower scores.

How to Choose a Worthwhile 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.

Popular Rewards Credit Cards to Consider

How to Get the Most Value From Your Rewards Card

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.

A rewards card is a credit card that gives points, miles or cash back, either for making purchases with the card or as a bonus for meeting a spending threshold in a certain time period. People with any level of credit can qualify for a rewards card, but you'll need at least “good” credit to be approved for the best credit cards with rewards. Rewards cards also have a wide range of annual fees. Some of the best rewards cards have no annual fee, while others charge hundreds of dollars per year.

What you should know about rewards cards:

Rewards Currencies

Credit card rewards come in three basic currencies – cash back, miles and points. Cash back credit cards give you a certain percentage of your purchases back. Miles credit cards offer miles that are either tied to a specific airline or are generic miles that can be used for any travel-related expense. Points credit cards either offer hotel points or generic ones that can be redeemable towards various products and services. Generic points and miles credit cards make for the best travel credit cards on the market.

Rewards Program Structure

Regardless of the rewards currency that your rewards credit card offers, you will generally earn them as initial/sign-up bonuses (often offered as a lump-sum rewards bounty after spending a certain amount in a specified time period), spending-based rewards (flat or different earning rates for various sending categories) or anniversary bonuses (such a free hotel nights, free flights, or a certain amount of points, miles or cash back each year).

Redemption and Value

Common ways of redeeming your rewards include statement credits (crediting your rewards balance to your account), checks, gift cards, merchandise, charities and special experiences. All these redemption methods will have different values, so your goal should be to redeem your rewards in a way that get you the highest dollar-value. While cash back is straightforward, always consider what you can redeem miles and points for and what they're ultimately worth.

Earning limits

Some cards implement monthly, quarterly or annual earning limits in certain spending categories or across. Always make sure to check what they are and consider whether they may affect your situation.

Rotating Categories

Some credit cards offer certain earning rates for spending categories that may change in a given time frame (e.g.: quarterly) and you have to sign up to earn that rate whenever that happens.

Devaluation and Expiration

Points and miles may have certain plateaus you have to reach in order to redeem them for goods and services. These plateaus aren't guaranteed to be static and if your credit card issuer increases them, your accumulated points/miles may be worth less by the time you can redeem them. In terms of rewards expiration dates, most issuers have done away with them, but always check to make sure that is the case.

In addition to paying for purchases with rewards credit cards, consumers can save money using a loyalty rewards card when shopping. Many resorts, hotels, and retailers have loyalty programs, and they'll often have a corresponding loyalty card or number that you can present when you make a purchase. CVS and Office Depot are two retailers with good loyalty card programs. The loyalty card keeps track of your eligible purchases and any rewards you've earned. Loyalty cards aren't credit cards, but they are a good way to rack up rewards for hotels or retailers you visit often.

Store credit cards and co-branded credit cards – which are affiliated with specific retailers and organizations – can also be used in conjunction with loyalty rewards cards to help you save as much as possible with your favorite brands.

Finally, you might hear gift cards referred to as reward cards, especially those awarded as a prize or incentive, or as credit in lieu of a refund.

The smartest way to use a credit card that has rewards is to charge everything that you can afford to it and pay it back quickly (by the due date each month). Avoiding interest is key to maximizing the value of a rewards credit card, since credit card interest rates are higher than credit card rewards rates.  

Smartest Way to Use a Rewards Credit Card

1. Pick the right credit card. Credit cards offer different types of rewards. If you travel a lot, a credit card with points or miles might be the best option for you. If not, a cash back credit card might be the more profitable choice.
2. Get the sign-up bonus. Many rewards credit cards offer an introductory bonus for users who charge a certain amount to the card within a specified period of time after opening an account. Make sure that the spending requirement for the sign-up bonus is attainable without having to overspend.
3. Use the card for the right purchases. Many rewards credit cards have different rewards rates for different expense categories – travel, dining and groceries, for example. You can use WalletHub's Island Approach to determine the best way to distribute your purchases among multiple cards.
4. Cut down overspending. As appealing as it is to see your rewards balance go up, making purchases to the brink of your credit limit will likely reflect badly on your credit score. Plus, it can put you at risk of accruing more debt than you can comfortably manage.
5. Pay your balance in full. Unless you pay your balance in full each month, you will incur interest charges, which could quickly outweigh any rewards earned.

You can easily use WalletHub's credit card comparison tool to find the best rewards credit card for your spending habits.

Three drawbacks of having a rewards credit card are high interest rates, potentially expensive annual fees, and terms and conditions that can be difficult to understand. While rewards credit cards are worth getting for many people, it's important to understand the potential downsides before applying for one.

3 Drawbacks of Having a Rewards Credit Card

1. High Interest Rates: Rewards credit cards often come with expensive interest rates, which can be a problem if you carry a balance from month to month. This can result in you paying more in interest charges than you are earning in rewards, negating the benefits of the card. Paying your balance in full every month will prevent this issue. It's worth noting that some rewards cards have lower regular APRs than others, and there are quite a few rewards cards that also have introductory 0% APRs on purchases.
2. Annual Fees: Many rewards credit cards charge an annual fee, which can be significant depending on the card and the rewards offered. This fee can eat into the value of the rewards you earn, and people who only use their card occasionally therefore might not get their money's worth. However, there are still plenty of rewards cards without annual fees, and cards with expensive fees can often be well worth it if you spend a lot due to their high earning rates and big bonuses.
3. Complex Terms and Conditions: Rewards credit cards often come with complex terms and conditions, including restrictions on how and when you can redeem rewards, limitations on the types of purchases that qualify for rewards, and expiration dates for rewards. It can be difficult to keep track of all the restrictions and requirements, and to ensure that you are getting the full value of the rewards you earn.

It is important to carefully consider these drawbacks and weigh them against the potential benefits of a rewards credit card before applying for one. It's also worth noting that most of the best rewards credit cards require good or excellent credit for approval, though there are decent options for people with fair, limited or even bad credit. You can learn more about the best rewards credit cards on WalletHub.