Table Of Content
What Is Cashback On A Credit Card?
A cashback credit card is a form of rewards card that allows you to receive money back on your purchases. Because the value of your rewards is apparent, a cashback card may be easier to use than a travel rewards card. However, cashback cards might range significantly depending on the rewards program and the exact card.
Credit card issuers offer cashback programs to encourage users to use their cards. For example: If you use a credit card that provides cashback and gives 3% cashback, you will earn $3 for every $100 spent. It's not free money because you have to spend money to get cash back.
How Cashback Credit Cards Work?
When you use a cashback card, cashback equal to a percentage of the amount you spent will automatically be added to your account after each transaction. If your credit card offers a cashback incentive of 3%, for example, you will receive $3 back for every $100 spent.
Depending on the type of card you have selected, the cashback rewards might be sent into your account either monthly or annually, in the form of a statement credit, paper check, or direct transfer to your bank account.
The motivation of your credit card companies comes from two things:
- The credit card firm receives a portion of each transaction fee when a merchant accepts credit cards as payment.
- As a customer, you may do additional activities that may drive revenue to your issuer. For example, carrying debt on your card.
Cash Back Credit Card Pros and Cons
Just like any other bank product, cash back credit cards do have some advantages and disadvantages.
Pros | Cons |
|---|---|
Cash Rewards And Welcome Bonus | No Travel Rewards |
No Annual Fee | Earning Caps |
Pure Cash | High APR |
- Cash Rewards And Welcome Bonus
There is no space for ambiguity regarding cashback credit card rewards because points are earned and redeemed in dollars, and it's one of the top reasons why people use credit cards.
Credit cards that offer cash back may also include signup incentives
- No Annual Fee
Most of the credit cards that offer cash back do not charge an annual fee.
So, you won't have to give up any of your rewards to pay a fee, and you can keep the card open even if you decide to use a different one more often in the future.
- Pure Cash
Unlike point rewards cards, cash-back rewards are expressed in monetary quantities, they are the most reliable kind of credit card reward (however, cash back programs can be changed).
However, it is up to the card issuer to determine the value of points and miles, which is subject to alter at any moment.
- No Travel Rewards
A travel rewards card is probably better if you want to use rewards for travel expenses or transfer points to an airline or hotel partner.
Most cash back credit cards do not offer travel rewards.
- Earning Caps
There are cashback credit cards that offer limitless rewards and those that restrict your cashback earnings on both regular and bonus categories of spending.
For example, the Citi
- High APR
The regular APR is likely high, even if a cashback credit card has an introductory period with 0% APR.
Interest can quickly wipe out the value of cashback earnings as a whole.
How To Choose A Cash Back Card?
Cashback credit cards come in different types, such as those with a flat rate of return, fixed bonus categories, or rotating bonus categories. The best cashback card for you is the one that matches your spending habits, so you can maximize rewards on the purchases you make most often.
There isn’t a one-size-fits-all “”best”” cashback card—it really depends on your personal spending patterns.
Here are some tips to help you choose the right credit card:
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- Compare Types Of Cashback Credit Cards
There are three cashback programs for cashback cards, and it's important to know what they are.
- Flat-rate cashback cards: These credit cards have one cashback rate that applies to all transactions, often between 1 and 2 percent of the purchase price. The Capital One QuicksilverOne, which offers Unlimited 1.5% cash back on all purchases and unlimited 5% cash back on hotels and rental cars booked through Capital One Travel (terms apply), is an example to flat rate cashback card.
- Rotating bonus: A fixed bonus category card provides a greater cashback rate. These cards generally have 5% cashback categories that rotate every quarter. The revolving types may change from year to year.
- Fixed bonus category cards: Fixed bonus category cards give a greater cashback rate in selected categories and at least 1% on other transactions. Dining, grocery, and petrol are common fixed bonus categories.
Examine your credit card or bank bills and monthly budget to determine your largest spending areas. Then, decide if you want a flat cashback card that earns on every transaction or a card with bonus spending areas.
- Make Sure You Cover Your Annual Fee
Even though many of the top cashback cards don't charge an annual fee, some card issuers do.
But you can often make up the cost of a yearly fee with cash back, statement credits, or other card benefits. If the card you're interested in has an annual fee, look at the rewards and benefits to see if it will be worth it for you to pay it.
Credit cards can provide a good cashback percentage on purchases. However, the cashback you get may not always be worthwhile. After accounting for these costs, reassess how much value you get from your cashback credit cards every few months.
- Check For Limitations and Restrictions
Take note of whether the rewards credit cards you're considering have cashback restrictions. Some of them do, and these restrictions are worth keeping track of if you spend a lot of money on a monthly credit card.
Card | Rewards | Annual Fee | Cashback Type |
| Discover it® Cash Back | 1-5%
5% cashback on up to $1,500 in rotating category purchases each quarter when you activate the bonus category (then 1%), as well 1% percent cash back on all other purchases
| $0 | Rotating Categories |
|---|---|---|---|---|
 | Citi Custom Cash℠ Card | 1-5%
5% cash back on your highest eligible spend category each billing cycle up to the first $500 spent and 1% cash back thereafter
| $0 | Rotating Categories |
| Chase Freedom Unlimited® | 1.5% – 5%
5% cash back on travel booked through Chase Ultimate Rewards, 3% on dining (including takeout and eligible delivery), 3% on drugstore purchases, and 1.5% on all other purchases
| $0 | Fixed Category Bonus |
| Capital One SavorOne Cash Reward | 1% – 8%
unlimited 3% cash back on dining, entertainment, popular streaming services, and grocery store purchases (excluding superstores like Walmart® and Target®). You’ll also earn 1% on all other purchases. Plus, you get 10% cash back on purchases through Uber and Uber Eats, 8% on Capital One Entertainment purchases, and 5% on hotels and rental cars booked through Capital One Travel
| $0 | Fixed Category Bonus |
| Citi® Double Cash Card | 1% – 2%
2% cash back rewards rate – 1% every time you swipe and another 1% upon payment.
| $0 | Flat Rate |
| Wells Fargo Active Cash® Card | 2%
2% cash rewards on purchases (unlimited)
| $0 | Flat Rate |
How to Apply For A Cash Back Card
Everything online has made it easy to apply for a card. When it comes to building a robust and reliable credit profile, credit cards can be beneficial.
Here are the steps to get a credit card.
1. Know Your Credit Score
Credit scores help lenders determine if you’re likely to repay a loan. If your credit score is low, it could result in your application being denied. That’s why it’s important to know your credit score before applying.
You can check your credit score through any of the three major credit bureaus—TransUnion, Equifax, or Experian—or through the credit card company that issued your card.
2. Check Your Needs And Do The Proper Research
After you have determined which credit cards you may potentially be approved for depending on your credit score, it is essential to consider the requirements that you have for a credit card and avoid some things before applying.
Carry out in-depth research on your various credit cards, considering your needs and aspects such as annual fees, cashback percentage, cashback caps, penalties, signup bonuses, etc.
3. Prequalify For Cashback Credit Card
When a lender says they have prequalified you for credit, it means that they have examined your financial information or credit history and concluded that you have a reasonable probability of being approved for credit if you apply.
A preapproval letter from a lender indicates that they have reviewed your credit report and are satisfied with it.
4. Gather The Necessary Information And Apply
You can apply to most cards online, but you can always go to the bank that gave you the card and apply in person or call a representative.
Information required while applying for a cashback credit card:
- Name of the applicant
- Date of birth
- Social security number
- Address
- Income proof
It's possible that acquiring a cashback credit card is an excellent financial move for you, but it's usually not worth your time or money to apply for or receive a credit card that doesn't fit your spending patterns.
Learn your credit score and compare it to the features of several credit cards to determine which one best suit your needs.
How to Maximize Your Cashback Card?
How you spend your cashback might make a huge impact. Here are some ideas for making the most of your cash-back credit card:
- Maximize cashback by paying bills: Check to see if you can pay for other bills using your credit card to maximize the amount of cashback you receive by using your credit card for essential needs like groceries, petrol, and restaurants.
- Use the cashback for spending: Say you have a credit card that gives you 2% cash back on every dollar you spend. Add up all the costs you can put on the card and pay with money. Examples include groceries, dining out, and entertainment. Instead of using the money in your checking account, charge these things to your card. After each purchase, pay the bill with the money you set aside, so you don't use up all of your credit.
- Know the rules & Spend more on higher categories: choose a card that provides higher cash back on categories you regularly spend on and spend smartly to maximize your rewards.
- Use the card issuer portal for additional rewards: several card issuers provide their customers with online portals via which they can earn extra cashback. The Chase Ultimate Rewards portal and the Amex membership club are the top portals, as well as the Capital One Travel and the Citi ThankYou portal.
- Don't let your account be in the red: Avoid debt and hold a balance if you want the most cash back. You may do this by charging what you can afford, documenting your expenditure, and paying your debt in full and on time each month.
Cash Back Card Alternatives
If you can't get a cash-back card or are not sure which credit card you should get, you may want to consider one of the following alternatives:
1. Secured Credit Cards
Secured credit cards are legitimate credit options, unlike prepaid debit or credit cards. You should get a secured credit card if you have poor credit and trouble connecting to a regular one.
To put it simply, this can help you repair your credit. Secured credit cards, on the other hand, require users to put out an effort to manage their finances responsibly by limiting their spending to the amount they have deposited.
2. Balance Transfer card
If you have good credit, many credit card companies will let you transfer balances to cards with exceptionally low-interest rates. Some have introductory interest rates of 0% for a certain amount of time, usually between six and 18 months.
A balance transfer is when you move the balance from one credit card to another. It can be a good way to save money on interest and pay off expensive credit card debt.
3. Debit Card
Debit cards, which come with current accounts, are an apparent alternative to credit cards. A debit card offers convenience and consumer protection when you can't use cash.
Without an overdraft, you can't spend money you don't have, but a debit card will help you control your spending.
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FAQs
If your cashback credit card pays 1.5% cash back on purchases, you will get $1.50 for every $100 that you spend, so if you spend $5000, your cashback will be (5000*1.5)/100=$75. Can I get a cashback card with fair credit?
Credit cards are a type of unsecured credit. This implies that issuers set a limit for you depending on your creditworthiness. Most financial institutions will not accept your credit card application if your credit score is too low.
Card issuers provide signup bonuses to attract new customers and grow their business.
Some credit cards give new cardholders a signup bonus if they spend a certain amount in their first few months with the card. The card determines the minimum amount and the premium itself.
The 2% cashback rate is one of the best flat-rate rewards programs on any cashback credit card. A cashback rate of 2% is higher than the average cashback rate on credit cards.
