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Making purchases with a rewards credit card allows you to earn cash back, points or airline miles you can then use to pay down your balance, book travel or for other purposes. This benefit makes rewards cards a smart choice for getting added value from your everyday spending.
To optimize the benefits of a rewards credit card and earn the most cash, points or miles for your spending, select a card that rewards the spending habits you already have and that offers rewards that align with your priorities.
|Is a Rewards Card Right for You?|
|Rewards credit cards might be right for you if:||Rewards credit cards might NOT be for you if:|
|You have a good or excellent credit score||You have a low credit score|
|You don't tend to carry a balance or you carry a low balance||You carry a balance regularly on your credit cards|
|Your spending habits align with rewards card categories||You don't routinely spend in typical rewards card categories|
How Rewards Credit Cards Work
Rewards credit cards incentivize card loyalty by rewarding you each time you use the card to pay. There are three main types of rewards cards, each with its own kind of reward currency:
- Cash back credit cards reward you with cash equal to a percentage of each dollar you spend, which may be a rate of 1% to 2%. Some cash back cards offer rewards for spending in categories such as gas, groceries and dining at a significantly higher rate—3% to 5%, for example. Cash back can be redeemed in multiple ways, including as a statement credit, a check or an electronic transfer to your bank account.
- Points rewards cards typically offer points at a base rewards rate of 1 point per dollar spent. Points can generally be redeemed in a variety of ways, such as for merchandise, gift cards, magazine subscriptions and stays at hotels and resorts.
- Travel credit cards offer points or miles for every dollar spent at a typical base rewards rate of 1 or 2 points or miles for every dollar spent. You can redeem travel points or miles for hotel accommodations, airline tickets and other options. Travel cards are typically points-based rewards cards, but some provide cash back rewards.
Rewards credit cards may also offer an intro bonus in the form of extra cash, points or miles. For example, a card may offer 50,000 bonus points (worth $500 in cash) if you spend $3,000 within the first 90 days of opening an account.
What Credit Score Do I Need for a Rewards Card?
The best rewards credit cards require you to have a good to excellent credit score, meaning 670 or above. Credit score requirements can vary by issuer, however, and premium rewards cards may require excellent credit. These rewards credit cards have competitive terms that may include high rewards rates, no annual fees and intro bonuses.
If you have a lower credit score, it may not be possible to qualify for some rewards cards. There are, however, some rewards credit cards intended for those with bad credit. These tend to have lower credit limits and less competitive rewards. So if your score is low, it may be advantageous to wait to apply and work on improving your score before submitting an application.
How to Choose a Rewards Credit Card
Rewards credit cards aren't one-size-fits-all. Compare the following key factors to pick the right rewards card for you:
- Type of rewards: Pick a card with rewards you'll use. Cash back cards are a safe play for most cardholders because the rewards can be redeemed for cash or as a statement credit—always useful. If you travel frequently, a card with high earning rates on travel purchases could provide a lot of bang for your buck.
- Rewards categories: Some cards offer the same amount of rewards for all purchases, also known as flat rate rewards cards. Other cards reward more for spending in certain categories, such as dining, groceries or travel. Select a card with high rewards for spending you already do, and don't increase your spending in pursuit of rewards.
- Intro bonus: Many rewards cards offer intro bonuses, which require you to spend a certain amount during the first few months of owning the card to qualify. Look for cards with a high intro bonus and a low spending requirement.
- Rewards expiration: Some cards don't impose an expiration date on rewards, which means you can use your cash, points or miles as long as the account is open. However, it's important to check the card's terms to see if it limits the lifespan of your rewards to a specific timeframe. Your rewards might also expire if your card is canceled.
- Annual fees: Rewards cards' annual fees can vary greatly, with some premium rewards cards charging fees in the hundreds of dollars. Weigh the card's fee against its potential rewards by calculating how the card's benefits could justify the fee. For example, at a cash back rate of 1%, it'd take $9,500 in purchases to cover a $95 annual fee. Some cards offer benefits that provide a value in other ways, however, such as complimentary hotel stays.
- Interest rates: Some rewards credit cards offer an intro 0% APR period, where you won't incur interest charges for a period of time, often 12 or 15 months. If you pay down your balance in full before the end of the introductory period, you'll avoid paying any interest on your purchase. Remember that while rewards are great, a lower interest rate can mean significant savings well beyond the end of the introductory period.
How to Make the Most of a Rewards Card
Savvy credit card users optimize their rewards card experience with these strategies:
- Don't overspend to earn rewards. Spending beyond your means just to rack up cash back, miles or points can cancel out the monetary benefit of the rewards because it could lead you to carry a balance and accrue interest.
- Consolidate your spending until you earn the intro bonus. Using your rewards credit card to pay for utilities, groceries, gas and other staple purchases, then paying the balance off in full, could help you reach the minimum spending requirement for the introductory bonus.
- Align a major purchase with an introductory bonus. Plan ahead to spend the minimum amount and use the intro bonus to your advantage. Apply for a rewards card a few months before you plan to make a large purchase, such as a gift or new furniture. Then pay off the balance in full to avoid interest charges.
- Redeem your rewards strategically. Rewards credit cards may offer you multiple ways to redeem, and there may be an option with a higher redemption rate. For example, travel cards generally offer higher redemption values for hotel and airline bookings, whereas cash back cards offer better redemption values for statement credits. Think in terms of maximizing value when you decide how to redeem.
Choose the Best Rewards Card for You
Choosing the best rewards credit card for your budget and spending habits can help you pay down your account balance and do more of what you like to do for less. That's a real bonus.
With hundreds of rewards cards available, it can be challenging to compare terms. To get the right rewards credit card for you, use Experian's CreditMatch™ to find a card that's matched to your credit profile and spending habits.