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How Do Rewards Credit Cards Work?
As the name suggests, rewards credit cards give you some type of reward for the money you spend using your card. There are essentially three types of rewards those types of cards offer:
- Cash back
- Credit card points
Rewards credit cards usually work like this: you accumulate cash back, points, or miles on your purchase, and later you can redeem them for some rewards.
Cash-back cards work similarly, you can usually redeem them for statement credits or direct deposits to one of your accounts. With credit card points and miles, you can redeem them for some type of reward, such as airline tickets, hotel nights, items at shops, and gift cards and vouchers.
Types Of Rewards Credit Cards
Here are some of the most popular cards and their rewards type:
United Explorer Card
1X – 2X 2x per $1 spent on United purchases, hotel accommodations, restaurants & eligible delivery services and 1x per $1 spent on all other purchases
$95 ($0 first year)
Delta SkyMiles® Gold American Express Card
1X – 2X 2X miles on delta purchases, at restaurants worldwide (including take-out and delivery in the U.S) and at U.S. supermarkets, and 1x miles on all other eligible purchases
Chase Freedom Unlimited®
1.5% – 5% 5% on travel purchased through Chase Ultimate Rewards, 3% on dining at restaurants, including takeout and eligible delivery services, 3% on drugstore purchases and 1.5% cash back on all purchases
American Express® Gold Card
1X – 4X 4X points at restaurants (including Uber Eats purchases in the U.S.) and U.S. supermarkets (up to $25,000 per year in purchases, then 1X points), 3X points on flights booked directly with airlines or on amextravel.com, 2X points on rental cars through amextravel.com and 1X points on all other purchases
Chase Sapphire Preferred® Card
2X – 5X 5x total points on travel purchased through Chase Ultimate Rewards, 3x points on dining and online grocery purchases and 2x on other travel purchases. Plus, earn 1 point per dollar spent on all other purchases
Citi® Double Cash Card
2%* 2% cash back rewards rate – 1% every time you swipe and another 1% upon payment.
Capital One Savor Cash Rewards Credit Card
1% – 4% unlimited 4% cash back on dining, entertainment, and popular streaming services, 3% at grocery stores and 1% on all other purchases.
We have already discussed that there are three main types of rewards credit cards offer to their customers. Consequently, here we will discuss each of the three types of credit cards in more detail.
The main idea behind cash-back credit cards is quite simple: banks and credit card companies offer to give you back a certain percentage of your spent money on certain categories.
For example, with the American Express Blue Cash Preferred® card, you get 6% cash back at U.S. supermarkets (up to $6,000 per year in purchases, then 1%) and selected U.S. streaming subscriptions, 3% cash back on transit and U.S. gas stations, 1% cash back on other purchases .
Those types of credit cards allow you to accumulate points for your purchases. Later you can exchange those points for different kinds of rewards. In addition, some cards also give you a welcome bonus if you spend a certain amount on a purchase.
One example of such a card is the Chase Sapphire Preferred Card, which offers 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening.
The third type of credit card is the one that offers clients an opportunity to earn a certain amount of miles on their purchases. Customers can redeem those miles for air tickets and, in some cases, for hotels, car rentals, travel packages, and other travel-related expenses.
One example of this type of card is the Alaska Airline Visa Credit Card, issued by Bank of America. The card offers 50,000 bonus miles if you spend $2,000 or more within 90 days of the opening of the account.
Rewards Credit Cards Pros And Cons
Rewards credit cards do have a number of advantages and disadvantages potential clients should know before applying. Here are some of those:
Earn Rewards For Regular Purchases
High Interest Rates
Those who don't have good credit to get a rewards card, spend money on everyday items such as groceries, fuel, clothing, and other categories and don't get any rewards on it.
Rewards credit cards allow those people to earn some rewards for those purchases, whether it be cash back, essentially getting some percentage of their spent money back, or points/miles, which they can redeem for a number of rewards.
In contrast to secured cards or balance transfer cards, some rewards cards offer lucrative perks such as flights, tickets to events, seat upgrades, lounge access, and annual travel credits.
Many rewards credit cards allow you to earn some fixed points or cash back if you spend some amount within 3 to 6 months of opening the credit card account.
So, in this case, you can earn this bonus and additional rewards on the money you spend using your credit card.
Most cards offer fraud and purchase protections; some even offer rental car or travel insurance options.
Not all rewards credit cards charge annual fees, but many do. Some luxury credit cards charge as much as $500 to $1,000 in annual fees. However, some people are still uncomfortable spending so much on annual fees.
Here it is worth noting that in most cases, if you maximize your available rewards, then you can make up for this expense.
Some people have no problem controlling spending and always pay their credit card balance in full. However, this is not the case with everyone.
The fact is that some people sign up for credit cards to get rewards, but then they lose control over their spending and only make minimum monthly payments.
In this case, once the introductory period expires, they have to pay high-interest rates on their purchases and get deeper into debt.
How To Choose Rewards Credit Cards?
When choosing a credit card, there are several factors with each card that are worth checking before you decide which one to choose:
- Interest rates
- Annual fees
- Welcome bonuses
- Cash back and points you can earn
- Any available perks
- Redemption options
- International transaction fees
The fact is that each customer has their priorities. Some focus on getting cards with low or no annual fees, while others might prefer cards with large bonuses. So you have to decide which of the factors from the above list is important to you and then identify the card with the best offer in those categories.
For example, if you decide that welcome bonuses are the most important, you can search and compare online credit cards with the most bonus points or miles.
On the other hand, if you prefer to keep fees at a minimum, it might be worth checking which bank or credit card company offers credit cards with no annual fees.
How To Get The Most Out Your Rewards Card?
There are several ways to make sure you get the most out of your credit card rewards. Here are some of the possibilities:
- Choose cards with bonuses – Cash back cards offer a fixed amount of cash bonus if you spend a certain amount of money within a specific period. At the same time, some credit cards offer points instead of cash back as a bonus. Therefore, to make the most of rewards, it’s helpful to apply for a card with welcome bonuses.
- Rewards on categories where you spend the most money – To maximize potential rewards, choosing a credit card with bonuses in categories where you spend most of your money is important.
For example, if you do not travel much and spend most of your money at grocery stores and gas stations, finding a card with cash back offers in those categories might make sense. On the other hand, if you travel frequently, then choosing a travel credit card with points might be better.
- Do not allow your points to expire – Sometimes, it is easy to forget that with most banks, your points expire within 1 to 3 years, depending on the financial institution. Therefore, it is important to keep an eye on that and redeem your points before they expire.
Rewards Credit Cards Alternatives
If you do not want to have a credit card or can not get approved for one, there are still opportunities to earn some rewards for your spending.
- Balance Transfer Card: If you carry debt, you might want to consider a balance transfer card. A balance transfer credit card offers a competitive introductory rate on balance transfers for a constrained period of time, and 0% intro APR on your balance for a specific period.
- Secured Card: If you need to build your credit, a secured card can be a great option for you. Secured cards can help you build credit – but you'll need to provide collateral to get a card.
- Debit Card: While debit cards differ from credit cards, some debit cards offer opportunities to earn some cash back and other types of rewards for your spending. One example of this is the Discover Debit Card. Here you can earn 1% cash back on all purchases up to $3,000 per month. This means you can earn $30 if you spend $300 within a calendar month.
Which credit score do I need to get a rewards card?
There is no one set rule that all banks follow when approving credit cards. However, it is worth keeping in mind that a good FICO score is 670 or higher, and if you have a good score, you are likely to get approved.
However, if your score is lower than that, it might still be worth trying because you still have a chance to get approved for a credit card.
Can I get rewards to card credit cards with no annual fee?
There are a number of credit cards that offer rewards but have no annual fee. One example is Bank of America’s Customized Cash Rewards Credit Card.
As the name suggests, you can choose the spending category where you will get rewards. Once you choose, you will get 3% cash back on your purchases in that category.
Which rewards can I get with a rewards card?
That depends on the rewards credit card in question. For example, with some cards, you can get cash back, which you can redeem for statement credit or deposit in your checking or savings accounts.
At the same time, if you have earned some points on your credit card, you can redeem those for several different rewards, such as travel packages, hotel nights, gift cards, vouchers, and so on.
Why do credit card issuers offer rewards cards?
There are a number of reasons why credit card issuers offer rewards credit cards to their clients.
Firstly, issuing rewards cards allows banks and credit card companies to attract new clients and increase their market share.
In addition, with rewards credit cards, banks can earn money on annual fees and interest.