Credit card companies are in a competitive industry. With so many credit cards available to consumers, card issuers have to find unique ways to entice customers to apply for and use their credit card over all of the others. The most common way credit card companies bring in new customers is through rewards credit cards.
What Are Rewards Credit Cards?
When a credit card offers something in exchange for a customer using the card to make purchases, it's considered a rewards card. Rewards may be offered in the form of cash back, travel benefits, merchandise, or points that can be redeemed for products and services.
The amount of “reward” or “bonus” a customer earns depends on the specifics of the rewards program and how much the customer spends. The more you spend with the credit card, the more you will earn in rewards – but you need to be careful that your reward card doesn't end up costing you more in annual fees and finance charges than you earn in rewards by making your payments in full each month and before the due date. Rewards credit cards tend to have higher annual fees and interest rates than non-rewards credit cards as the trade-off for offering a rewards program. Generally, customers who carry a balance from month to month on a rewards card will end up paying more interest and finance charges than they will earn in rewards.
How to Choose a Rewards Card
When considering different rewards card options, you want to look for a card that offers rewards you will actually use. If you only travel by plane once every five years, a frequent flier rewards program is probably not going to be overly rewarding for you! Some travel rewards credit cards offer free hotel nights, gasoline, or rental cars – perfect for people who want to earn discounted or free vacations. Cash back rewards programs, or gift certificate rewards, tend to benefit everyone, since the money is applied to the credit card balance or sent to the cardholder in the form of a check, but any card that offers rewards on every-day items (like groceries) are a good choice for most credit card users.
Watch Out for Expiring Rewards, Maximum Earnings and Black-Out Dates
Some credit card rewards have expiration dates for redemption. Read the terms and conditions of your credit card carefully to make sure you are redeeming any rewards earned before they expire. Even better, choose a rewards card with no expiration date so you can continue earning the rewards until you're ready to redeem.
If you are someone who uses credit cards frequently, you won't want a credit card that limits rewards earnings. For example, a gas rewards card may limit you to $300 a year in free gas – but if you would have earned $1,000 a year without their maximum limitations – this card is not a good fit for your needs.
Additionally, some travel related rewards cards have limitations for when you can redeem your earned rewards. This can be frustrating if you're trying to use your rewards to book a flight or hotel, only to find out the dates you need to take the trip are not eligible for rewards redemption.
Take Advantage of Reward Promotions
Many rewards cards offer special promotions which allow cardholders to earn additional rewards for a limited amount of time and for making certain transactions. If you're applying for a new rewards credit card, look for one that offers a sign-up bonus to kick start your reward earnings. Many cards will offer additional points, cash back, or mileage earnings when you transfer another credit card balance to the rewards card.
Maximize Your Rewards Earnings
Once you've found a rewards credit card that meets your needs, focus on maximizing your rewards earnings. You can earn more rewards by using your card for the majority of your purchases each month – just be careful that you pay your balance in full before the due date. If you carry a balance from month to month, the interest you pay is more than likely going to eliminate any rewards you earn.