The best rewards credit card: How to find your fit
Rewards credit cards offer a profit from cash you're as of now spending,
making them quite possibly of the best resource in your individual accounting
stockpile.
These little "rewards" can amount to a decent amount on the off chance that
you boost your utilization. In any case, this accompanies some examination,
purposeful spending, and mindful use.
What is a rewards credit card?
A prizes Visa is a sweeping term for any charge card that offers you a motivator on its utilization.
These regularly come in three structures: cash back, miles, and focuses.
How do rewards credit cards work?
Rewards credit cards offer you an incentive (like points, miles, or cash back) for money you're already spending.
For example, an active Chase Ultimate Rewards user may use one of their participating credit cards to earn cash back on their everyday spending.
On the other hand, if you are a jet-setter, you may use the Capital One miles program whenever you have travel purchases for its unique earnings.
However, if you’re like many spenders, you may do a little bit of both and have acquired different credit cards for different purposes. Perfectly acceptable, and arguably a smart way to maximize earnings.
3 types of credit card rewards programs
There is an unmentionable amount of reward programs currently available. Assuming that every major U.S. bank and financial institution, such as Chase, Bank of America, Capital One, and Citi all have their flagship rewards programs like Chase Ultimate Rewards or Capital One Miles.
On top of this, numerous co-branded credit cards in partnership with airlines, hotels, and retailers like Amazon or Hilton have their rewards systems. Plus, there are several smaller banks and credit unions offering their rewards programs as well.
From that tally alone you can expect well over 100 programs to sift through. But they are usually segmented into three types of reward programs:
Points programs: Credit cards with points programs allow cardholders to earn points for every purchase.
Cash-back programs: Cash-back credit cards offer a percentage of the purchase amount back to the cardholder, typically as a credit on their statement or a direct deposit.
Miles programs: Miles rewards cards provide cardholders with "miles" for every purchase, primarily tailored for frequent travelers, and can be redeemed for airline tickets, upgrades, or other travel-related benefits.
What are credit card points?
Credit card points are a reward system where cardholders accumulate points based on their purchases. These points can be redeemed for various rewards, ranging from merchandise and gift cards to travel and experiences.
Who are they best for?
Credit card points are best suited for individuals with varied spending habits and looking for flexibility in their redemption options. They're particularly beneficial for those who prefer a range of rewards rather than being restricted to cash back or specific travel perks.
How to earn credit card points
Sign-up bonuses: Many credit cards offer lucrative bonuses for new cardholders once they spend a certain amount within the first few months.
Regular purchases: Cardholders typically earn points for every dollar they spend on eligible purchases.
Bonus categories: Some cards offer higher point rates for specific categories, like dining, supermarkets, or gas stations.
Shopping portals: Many credit card issuers have online shopping portals where users can earn extra points by shopping with partner retailers.
Special promotions: Occasionally, issuers might run promotions or partnerships where cardholders can earn additional points for a limited time.
What are credit card miles?
Credit card miles, often referred to simply as "miles," are a type of reward system where cardholders earn miles for every purchase made on the card. Once accumulated, these miles can be redeemed for air travel, hotel stays, and other travel-related expenses.
Who are they best for?
Credit card miles are ideal for frequent travelers, be it for business or leisure. They cater to individuals who are looking to offset their travel expenses or enjoy travel perks, such as lounge access, priority boarding, and free baggage check.
How to earn credit card miles
Sign-up bonuses: Many miles-based credit cards offer a sizable chunk of miles as a bonus for new users who meet a certain spending threshold within the initial months.
Everyday purchases: Typically, cardholders earn a set number of miles for every dollar they spend.
Travel-related expenses: Many travel credit cards offer additional miles for expenses related to travel, like booking flights, hotels, or car rentals with the associated brand or partners.
Dining programs: Some card issuers have dining reward programs that give extra miles when you dine at partner restaurants.
Promotional campaigns: Issuers often run limited-time offers where spending in certain categories or with certain partners can yield bonus miles.
What are cash-back credit cards?
Cash-back credit cards are a type of rewards card where cardholders receive a percentage of their purchase amount returned to them as a reward.
This "cash back" can be issued through statement credits, checks, or direct deposits, effectively reducing the amount the cardholder spends.
Who are they best for?
Cash-back credit cards are ideal for individuals who value straightforward rewards and are looking for tangible, immediate returns on their spending. They are especially beneficial for those who may not travel frequently and prefer a clear-cut, monetary reward over points or miles.
How to earn cash back
Sign-up bonuses: Some cash-back cards offer a bonus cash reward for new users who spend a specific amount within the first few months.
Everyday purchases: Cardholders earn a defined percentage back on all qualifying purchases.
Category-specific rewards: Many cash-back cards offer higher percentages for specific categories, such as groceries, gas, or dining.
Rotating categories: Some cards offer higher cash-back rates on categories that change periodically, requiring cardholders to activate these categories to earn the bonus.
Shopping through issuer portals: Similar to points-based cards, some cash-back cards allow users to earn additional rewards by shopping through the issuer's online portal with partner retailers.
How to find the best rewards credit cards
Choosing the best rewards credit card can be done by asking one question: "Which card benefits me the most?"
Define your rewards objective
Start by pinpointing the type of rewards that align with your lifestyle and aspirations. Are you aiming for straightforward cash back, or are you more interested in accumulating points or miles for unique experiences and travel?
Look at your spending patterns
A careful review of your monthly expenses will help you identify where most of your money is spent. This insight can guide you to cards that reward those specific categories more generously.
List and compare
Craft a concise list of potential cards, emphasizing those with higher rates and compelling introductory bonuses or welcome offers. This comparative approach ensures you'll get the most value for your spending.
Examine short-term vs. long-term benefits
Don't immediately jump at the card with the highest welcome or introductory bonus. These are fleeting and after the dust settles you want a card that will benefit you now and in the future.
Explore pre-qualification opportunities
Before diving into an application, check if you can prequalify before you open an account. It provides an early indication of your likelihood of approval without impacting your credit score.
How to compare rewards credit cards
Comparing rewards credit cards (or any credit card for that matter) is largely personalized and unique to your personal spending. But there are some factors to consider when weighing the options:
Annual fee
Many cards have no annual fee (my favorites) but many do and they can range from below $100 to over $500. The point isn’t the fee itself. The one question you need to ask is "Will the benefits offset the cost?"
Earning potential
Speaking of benefits, you need to have a good range of your annual return for that specific rewards program. To do this, take your average spending and compare it to their earnings system.
For example, if you're researching a flat rate 1.5% unlimited cash back card and you spend roughly $500 per week here's what your approximate annual return will be:
$500 p/week x 52 weeks = $26,000 in annual spending
$26,000 x .015 (1.5% cash back) = $390
Spending categories
While some rewards credit cards offer blanket points, miles, and cash back for every purchase, not all of them do. Some have tiered programs where you earn more in one category and less in another. For example:
Credit Card X offers the following spending categories:
5% cash back on gas and groceries
3% cash back on dining and takeout
1% cash back on everything else
Welcome bonus
One of the best things about credit card shopping is the intrigue of "free" anything. Welcome bonuses are that little added incentive where the credit card companies all vying for your business throw down this gauntlet as the ultimate "pick me."
Welcome bonuses vary but typically keep the same stipulations. A new cardholder upon approval will be gifted a "bonus reward" either in miles, points, or cash back.
Here's the catch:
Most often you have to spend a certain amount within a given timeframe to receive the bonus (example: spend $500 in the first 3 months and receive $200 cash back).
If you fail to make your payments on time or don't spend the allotted amount during the introductory window, you forfeit the bonus.
Intro APR offers
Introductory APR offers will allow a free pass on incurring interest for any balances held during that period. But once the period expires you will incur interest charges for outstanding balances when your billing cycle ends.
The average rewards credit card interest (APR) is currently over 24%.
And that is for rewards cards in general. Airline credit cards are even higher, having an average interest rate of over 25%.
If you're planning on paying off your balance every month, there is no need to worry about this interest rate.
Credit score
While some credit card companies don't divulge this information, it's an unwritten rule that some credit cards are gatekept for those that have two things:
A higher-than-average credit score (exceptional in some cases)
An established credit history (you've proven that you can handle and use credit.
How to calculate credit card rewards
Every swipe of your credit card can earn you a reward, but how much? These are the five steps you can apply to almost any transaction:
Identify the reward rate: Check your credit card's terms and conditions. In our example, the reward rate is 2%.
Determine the purchase amount: This would be the total amount you spent. Let's say your bill was $100.
Multiply the purchase amount by the reward rate: $100 x 0.02 = $2.
Consider any caps or limits: Some cards have a maximum reward limit per month or year. Ensure your calculated reward doesn't exceed this limit.
Factor in bonuses: Some cards offer bonus points or cash-back for reaching certain spending thresholds.
Keep in mind, some exchanges of money do not earn you rewards.
Balance transfers
Cash advances
Other cash-like transactions
Lottery tickets
Casino gaming chips
Race track wagers or similar betting transactions
Any checks that access your account
Interest
Unauthorized or fraudulent charges
Fees of any kind, including an annual fee
How to redeem credit card rewards
There's no shortage in ways to redeem your credit card points. Here are some of the most common options:
Statement credit: A reduction or credit applied directly to your credit card balance.
Direct transfer to your bank: Transfer your rewards' cash value directly into your linked bank account.
A check: A paper instrument issued by the credit card company representing the cash value of your rewards, which you can deposit or cash.
Gift cards: Preloaded cards that can be used for purchases at specific retailers or a group of retailers.
Tickets to events: Passes for events like concerts or sports games.
Charitable donations: Using rewards to make a monetary contribution to a nonprofit organization or cause.
Travel upgrades: Using points or rewards to enhance travel experiences, such as upgrading a flight seat or getting a room upgrade in a hotel.
Airline miles: Rewards that can be redeemed for flight tickets or discounts with specific airlines.
Hotel stays: Points or rewards that can be used to book accommodations in participating hotels.
Annual fee waivers: Using accumulated rewards to offset or cover the yearly fee associated with a credit card.
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