Rewards credit cards allow people to earn rewards when they make purchases with their card. By using a rewards card for your everyday spending, the rewards can add up quickly, bringing you closer to your next vacation or big purchase. Here we explain what a reward card is and how it works.
What is a rewards credit card?
A rewards credit card “rewards” you with cash back, points or miles when you make purchases with your card. You can then redeem the rewards you’ve earned for everything from statement credits to travel, gift cards, merchandise and more. Most rewards credit cards fall into two main categories: travel credit cards or cash back credit cards.
Related: How (and Why) You Should Earn Transferable Credit Card Points
How to choose a rewards credit card
Before choosing a rewards credit card, it helps to analyze your spending habits. What do you spend most of your money on? This can help you determine which type of rewards card is best for you. For example, would you rather earn cash back or travel rewards?
Cash back is simple and offers more flexibility as it can be used for things other than travel. Travel rewards may vary.
Flexible currencies such as American Express Membership Rewards points and Chase Ultimate Rewards points can be redeemed for travel through any issuer’s travel portals or transferred to travel partners.
Often, cards that earn travel points also allow you to convert your points into cash back. However, we don’t recommend this because the refund rates for this method are usually low. For example, Amex Membership Rewards points can only be converted to cash back at a discounted rate of 0.6 cents per point.
When redeeming, I recommend aiming for at least 2 cents per point.
Other travel credit cards include cobranded airline and hotel cards. These earn points or miles with a specific airline or hotel. For example, United Airlines credit cards earn United MileagePlus miles, and Hilton cards earn Hilton Honors points.
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Finally, many rewards credit cards charge an annual fee. These fees can vary widely depending on the card, but cards with higher annual fees typically offer more perks and benefits. Always measure the potential rewards and benefits against the annual fee to justify the cost.
Related: Cash Back vs. Travel Rewards: How to Choose a Credit Card
What credit score do I need for a rewards card?
Most travel rewards credit cards require you to have a good credit score of at least 670. It all depends on the card you apply for. Some premium rewards credit cards may require excellent credit to be approved. There are cases where people with lower or higher scores have been approved or rejected; it depends on your specific scenario.
If your credit card application has been rejected and you believe it should have been approved, the card issuer may have a reconsideration line that you can call and request that your application be reconsidered. It’s also important to note that some cards have application restrictions that may prevent you from being approved.
Related: What is a good credit score?
How to Maximize Credit Card Rewards
One way to maximize credit card rewards is to use multiple rewards cards to take advantage of bonus income in multiple spending categories.
For example, you can use the American Express® Gold Card and the Capital One Venture Rewards Credit Card. Use the Amex Gold to dine worldwide as you earn 4 Membership Rewards points per dollar spent. You should also use the card to shop at US supermarkets, as it earns 4 Membership Rewards points per dollar spent, up to $25,000 annual spend, then 1 point per dollar thereafter.
With the Capital One Venture Rewards, you’ll earn 2 miles per dollar spent across the board, so you can use this for the rest of your spending.
There are many ways to combine two or even three reward credit cards to maximize rewards.
Related: Better Together: The Ultimate Guide to the Best Credit Card Combos
In short
With a rewards credit card, you can earn rewards on almost all of your spending. Keep in mind that the right card should fit your lifestyle, and if there is an annual fee, make sure it is justified. When used correctly, the rewards you earn from credit cards can be a great way to jump-start your next trip or save you money.
