What to Look for in a Rewards Credit Card 

What to Look for in a Rewards Credit Card

Here’s how to approach credit cards that offer bonuses and rewards.

Do one thing: Before you apply for a rewards card, review your spending and payment habits. If you aren’t able to pay off your credit card balances at the end of each month, now may not be the best time to get another rewards card. Why? Because what you’ll pay in interest will quickly cancel out any rewards earned.

What are Rewards Credit Cards?

As the name implies, rewards credit cards offer customers some type of reward — typically points, travel miles, or cash back — depending on how much you spend, and often up to certain specified amounts known as caps. You are then able to use the rewards in a variety of ways, depending on the card issuer and their rules. For example, some cash-back cards pay rewards after 12 months of use if you follow specific guidelines, such as paying your bill on time every month.

The initial idea of offering customers a reward for using a credit card to pay for purchases is credited to Diners Club which launched such a card in 1984 called Club Rewards. In the 40 years that have followed, the popularity of credit cards with rewards has transformed the industry, with savvy customers strategically spending on rewards credit cards to earn enough to cover the cost of family vacations, free hotel nights, travel upgrades, and everything in between. 

Who Uses Rewards Credit Cards?

In a recent report, more than 80% of American adults had at least one credit card in their wallets that offered rewards, according to a survey commissioned by the Electronic Payments Coalition and conducted by Morning Consult.

Of the more than 5,000 people polled, cash back was the most popular reward card category with 66% of cardholders having a card offering cash back. The rest? Some 45% of those surveyed reported having a card that offered points, while 17% went with a miles-earning card. A majority of the people surveyed – about 75% – earned less than $50,000 a year.

What to Look For

When it comes to finding the best rewards credit card, there are hundreds of options to choose from. And like so many things in life, it’s important to note that not every card is a good fit for every person. If you are new to the rewards cards or could use a refresher, it’s smart to do your homework and investigate a variety of cards before applying. Here are some tips to help make the process a little less stressful.  

What Types of Rewards Cards are Available?

  • Travel Cards – If you travel frequently, or are particularly loyal to one airline, consider a travel card that gives you miles or points. If you’re not loyal to one carrier, consider a travel card that’s a little more flexible — that allows you to use your points on a variety of airlines, hotels, and resorts. 
  • Cash Back – As the results of the survey mentioned above show, cash is king when it comes to rewards credit cards. So if you’re not sure you’ll redeem points or miles for travel, opt for a card that gives its customers a percentage of cash back on every purchase. 

Always Read The Fine Print

Make sure you know what you’re getting into before you sign (or click) on the dotted line. Sign-up bonuses offered by some credit card companies can be enticing. But often, the rewards come only after you spend thousands of dollars in a specific time frame, say three or six months. The same goes for introductory APRs. If you don’t practice good financial habits, such as always paying your bills on time, those introductory rates can quickly disappear only to be replaced with a much higher rate. 

Buyer Beware: If you do an online search to review various rewards credit cards, it’s smart to remember that many of the search engine results will be for websites that receive compensation from specific credit card companies.   

With reporting by Casandra Andrews

Jean Chatzky

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