Best Rewards Credit Cards

A credit card that focuses on rewards, provide customers with a way to earn kickbacks for spending on a credit card. Remember, credit card companies make money if you spend with them. American express charges vendors up to 3% per transaction, so they have no problem incenting customers to spend more by giving them rewards. If you have good to great credit and generally don’t carry a monthly balance on your card, you can enjoy rewards that might otherwise be out of reach. There are a wide array of rewards available to credit card consumers and it’s helpful to understand the types of credit card rewards that are available, which will allow you to profit from your regular spending.

What is a Rewards Card?

A reward card provides perks for using your card, which generally falls into three categories, which include cash, points, or miles. Cash rewards are the most straightforward and easiest to use and understand. However, cash rewards can be misleading as they do not always pay you cash. Some rewards programs only allow you to redeem your cash rewards as a credit to your account. Other credit cards will tally your cash back rewards and send you a check that you can deposit into your bank account. Costco, actually makes you redeem your rewards for cash or a check but you have to pick it up at one of their stores.  Most of the time, you will have to redeem your rewards in specific increments, such as $25, $50, $100 dollars, etc…

The calculation for point rewards is generally based on the dollars you spend.  Usually, 1-point per dollar, although there are many reward cards that double or even triple your rewards.

Some reward cards allow you to redeem your points for cash, gift cards, and even travel.  The goal is to determine the most bang for your buck.  For example, some credit cards rewards will provide you a $100 gift card for 100-points, but only $50 in cash back for the same number of points.

Travel related rewards and miles cards help you redeem airline tickets, or in some instances, hotel stays. The number of miles needed to purchase a flight can vary as well as the number of miles that you can receive from a specific number of points.  Redeemable miles are generally based on specific periods based on supply and demand.  For example, during the holiday season, the number of miles needed to purchase an airline ticket will increase relative to periods following the holiday season.

What is interesting is that many consumers do not research the rewards that you can receive before applying for a card. The moral of the story is to perform your due diligence and make sure you get the card that fits your spending habits.

Discover the Best Rewards Credit Cards

Who Should Get A Reward Credit Card?

Remember, credit card companies are in business to make money, and generally providing robust rewards are offset with higher interest rates and an annual fee.  If you spend money on your credit card on a regular basis, then you are likely a solid candidate to apply for a reward card.  Remember, if you are paying an annual fee, it might take quite a bit of point to recoup your expense.

Reward credit cards are great for people who pay their debt off every month.  If you carry a balance, the interest expense is likely to eat into the benefits you receive from reward points.  You can look the benefits and the costs of a reward card as a financial ledger. The goal is to maximize your benefits by generating rewards without getting penalized for using the credit card.  While carrying a balance for a month or two will not sharply erode your reward benefits, longer periods might.

Interest Expenses Erode Reward Points

If you hold a balance for 6-months on a balance of $2,000 that has an APR of 18%, your interest costs would be approximately $180. If you earned cash back at 5% for the first $1,500 dollars, which is a common reward program, that is followed by 1% for all subsequent purchases, you would have to spend $12,000 to make back your $180 in interest charges.

To get a reward card, you will likely need to have a credit score that is good to great. While it is possible to find reward cards if you have fair to bad credit, the interest rates that are charged will only work if you can pay off your debt every month. If you can pay your phone bills or cable bills, or your rent or utility bills with a credit card, and you are confident that you will meet your obligations, then you can get cash back that is approximately 1-2%.

Your credit score drives the rate that you will be offered, which can also help drive your decision on whether you should look for a reward card. If you know in advance how much spending you will do a year on a credit card then you can back into whether you can hold a balance or if you can pay an annual fee.  Certain credit cards, such as the Citi Double Cash Back card, pays 2% on spending. If you know that you are going to spend $100,000 on this card during a year, then you know that you have $2,000 to use.  If you run a business, using a credit card is a great way to pay for expenses, as it reduces your overall costs.  For example, a contractor that makes $100,000 from jobs where the revenue was $600,000 and expenses that were paid on a credit card were $500,000, can earn an additional $10,000 in cash back.

Types of Reward Credit Cards

There are several types of reward cards with 3-main categories which include cash back, reward points, gas rewards, airline miles, travel rewards, and retail store rewards.  To determine which reward card is best for you, you need to analyze your spending habits.

Cashback is generally the most efficient, but won’t always provide you with the best bang for your buck.  Many credit cards provide you with a flat fee, like the Citi Double Cash Reward card. This card has no annual fee and pays you 1% when you purchase and 1% when you pay off your purchase. If you pay off your purchase every month religiously, the 2% Citi pays is an excellent rate. It also boasts a zero-annual fee. The downside is that based on your credit score the rates can be very high. It has an APR from 14.49% – 24.49% that is variable. It has a penalty APR, which is up to 29.99%, which can be devastating and a cash advance APR and is 26.24%, and variable.  So, one month where you receive a maximum penalty of $1,000, would cost you $299/12 or $25.  To make this back, you would need to spend $1,250 and earn 2% cash back.

Miles rewards are great if you are a constant traveler and also like to use your miles for vacations. If you have sales that require that you are hitting the friendly skies, the amount that you spend on your travel can provide many free flights.  Many credit cards offer large miles signup bonuses, as an incentive to get you to sign up for a miles credit card.

The Chase Sapphire Credit card offers a credit sign up bonus and robust rewards for miles and for partner miles. Chase allows you to redeem your points for 1.25 cents each on airline tickets, or you can transfer your miles on a dollar for dollar basis to one of their partners such as United, British Air or Southwest Air. Additionally, they offer a 50,000 point bonus offer which can also be transferred to one of their partner airlines.

Your Credit Score

Your credit score describes your credit payment history as well as your outstanding credit and the ability for you to pay down your debt. Your Fico score (Fair Isaac Corporation) rates your credit between 300-850. A FICO credit score of 700 or above is generally considered good. A score of 800 or above is considered to be excellent. Most credit scores fall between 600 and 750. The higher the score the more confidence a lender has that you will pay back your debt.

A credit score is used by credit card issuers such as banks, financial institutions, and credit unions, to make decisions about whether or not to offer your credit and what the terms of the offer should be. This can include how much credit they should offer you as well as the terms and rates. There are many different types of credit scores. Including scores by VantageScore which along with FICO is the most common.

Several of the best miles credit cards are available for any credit score of at least 600 points. Co-branded airline credit cards, which are in conjunction with a bank or a financial institution are some of the best places to look if you want to improve your credit by owning a credit card. Most of the time a better credit score leads to a better chance that you will have your application approved.  The issue is that a credit card applications can be complicated you might be approved with a lower score or declined with a higher score because they also take your income, credit history, and the number of recent card applications.

What is a Signup Bonus?

A signup bonus is an additional incentive offered by a credit card issuer, like a bank or credit union to attract you to their credit card.  This could be a multiple of the cash back you would normally receive when you make your first purchases.  For example, if the credit card normally provides 1% cash back on all purchase of goods and services, you might receive double that amount on the first 20,000 you spend as a signup bonus.

Who Should Get a Credit Card with a Signup Bonus?

Sign up bonuses are an incentive, and they are geared for people looking to spend on their credit cards.  These cards are geared for people who use their credit card for daily expenses, such as purchasing gasoline or going to the supermarket.  If you pay off your cable bill or phone bill with your credit card then you should consider getting a credit card with a robust signup bonus. On the other hand, if you barely use your credit card during the course of a year, then finding a credit card with a signup bonus would be less attractive then one with no annual fee.


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Summary

Reward credit cards are great for people that actively use their credit cards, and generally, do not carry a balance. Credit card rewards are accumulated by spending activity, with some providing cash back, reward points or even miles.  You should be leery of reward cards that have annual fees as well as very higher interest rates with penalties.

Travel points and mileage are great for people that are on the road a lot, but if you don’t make a habit of traveling, there are many other reward benefits where you can redeem reward points for gift cards and merchandise.

There are reward cards that offer signup bonuses as well as no annual fees, but nearly all charge a robust interest rate, even if there is a teaser rate to help get you in the door.

Your credit score will also go a long way in helping you determine if a reward car is right for you.  Stronger scores, allow a credit card issuer to charge you a lower rate, and if you have to carry a balance, the interest penalty might not erode the value of the rewards.