Complete Guide to Rewards Credit Cards

Whether you're looking for the perfect rewards card or just want to know more about how they work, we've got you covered.

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Complete Guide to Rewards Credit Cards

A Detailed Look At How Reward Programs and Cards Work

Love free stuff? Credit card companies entice you to sign-up for their rewards cards by promising free cash, frequent-flyer miles, store points, and more. Statistics show that almost 80% of people in the US have at least one credit card and, the revolving debt sits at over $884 billion as of January 2015. With almost 2 billion credit cards in use in the USA alone, the average person has around four credit cards in their wallet. Are you one of them?

If you're thinking about applying for one of these offers but don't know which one is right for you, keep reading!

The Appeal of Reward Programs

Do you like the idea of spending money and earning points? That's exactly what rewards cards promise: ways to earn cash on purchases, frequent flyer miles, discounts on groceries, and more.

Rewards cards are appealing because they provide a points system that makes customers feel as if they are being rewarded for spending money. In other words, the more you use a particular credit card or shop at the same store the more rewards you can accumulate.

People also like to feel as if they are a part of a community, and loyalty programs make that possible. If there's an incentive, you are more likely to spend. Credit card companies capitalize on this by providing their clients with rewards points for growing their loyal customer bases

How Banks Provide Reward Programs

Banks can afford to provide these rewards because they make bank from the interest and fees charge. Not all credit card users pay off their balances each month, and so the banks earn profits and transfer some of these profits to their loyal customers through the use of rewards points.

Citigroup recorded interest profits of $11,822 million in 2015 while only paying out $5,483 million in compensation and benefits. Clearly, they are ahead of the game. There are enough people in debt to sustain their loyalty payouts.

But how do these rewards cards work?

What You Need To Know

If you have a credit card, you are going to receive a monthly statement that may show the following:

  • Details of your charges on the card
  • The balance of your account
  • The balance of your account
  • The minimum repayment due – if you pay just the minimum amount you will be charged interest
  • Monthly spending
  • Payment due date

Important: Make sure to pay by the due date. Otherwise, you will be charged late payment fees. In the top right-hand corner, you can see the number of accumulated points . These points can be redeemed for travel, merchandise, gift cards, dining, and entertainment.

Rewards cards are a great option and can offer a broad range of benefits.

7 Questions You Need To Ask

Before choosing a reward card, it's important to consider several factors and ask the following questions.

Where do I earn the most points?

Reward cards can usually be divided into two categories: those that give a flat rate on their rewards, whether cashback rewards or airline miles, and those that attribute different values to different retailers. For example, the Chase Freedom card gives bonuses for every dollar spent on gas for the months out of the each year. Gas stations are just one of the potential retailers that can provide bonuses. Check the terms and conditions of your card to find out other ways to earn more.

Do I need to activate bonus categories?

Many cards, like the Chase Sapphire card in the above paragraph, offer specific bonuses — but many of these bonuses have to be activated, either through an email opt-in or via another method. Sometimes the bonus is automatic, but not often. Forgetting to activate these bonuses means you might fewer cashback rewards.

Keep an eye on correspondence from your credit card issuer to make sure you don't miss out on any potential bonuses.

Are you paying back more in interest than you're earning in cash backs/rewards?

For example, if your interest rate is 10% and your rewards rate is only 2% and you're not paying off your card each month, you are 8% behind. But if you pay the card off every month, you do earn that 2%.

To put it another way, if you get 1 point per $1 spent, you often need to collect around 5,000 points to get $100 cash back. This amounts to a return of 2% — not bad if you pay off the balance.

Are there any annual caps on points?

How many points can you earn before you hit the limit? Nowadays with fierce competition between banks, you'll often see ‘no points cap' advertising – there is no limit to how many points you can accumulate.

Is the card provider charging you extra annual fees for the benefits of points?

Rewards cards often attract higher annual fees that users might not be aware of. Read the fine print and ask yourself: what makes a qualifying purchase?

Do the points have an expiration date?

Having an expiry date on your rewards points can be annoying. More often than not, credit card companies don't have an expiration date. However, there are some benefits to having an expiration date for your points. It creates an urgency to spend (more money for the provider) and to use the points (benefit the user).

American Express, Chase, and Bank of America don't typically have expiration dates as long as your account isn't overdue. Citi ThankYou Points, for example,generally expire after three years. Others won't expire as long as you earn or redeem points within any twelve month period. This motivates you to keep using your card, spending money and earning points.

All these factors impact whether or not that specific rewards card is right for you.

Do I lose my rewards if I miss a payment?

You shouldn't miss a payment on your card for several reasons: late fees, hits on your credit score, etc. Another reason is that the majority of credit card issuers require that your account be in "good standing" in order to earn rewards; this means you have to be up to date in order to earn or redeem any of your rewards. Keep track of your billing period so that you don't miss a payment. You should also keep in mind that if you choose to close your card for whatever reason, you will likely lose any rewards and points you have accumulated.

Cashback rewards cards:

Cashback rewards cards encourage cardholders to spend by offering them a percentage of the money back.

Airline cards:

Airline cards earn you points for every dollar you spend that get converted into frequent flyer miles. If you consider yourself a bit of a globetrotter or travel often, these cards can grant you access to special lounges while you wait for your flight, free seat upgrade and free flights.

Reward points can't be used for all flights. There are blackout periods in which seats on flights will not be available for frequent flyer miles. Then there's the issue of which card to get? Often, airline-specific cards are limited to one airline (although these days many do have partner airlines where you can enjoy some benefits). It's worth checking into who your rewards points may be used with before signing up for a specific airline card. However, if you plan on only using one specific airline (Delta Air for example), an airline specific card might be your best option.

Retailer cards:

Retailer cards are store-specific and offer extra points or cash backs if used in their stores. Retailers do this to gain customer loyalty. Examples of common retailer cards include the card, the Best Buy retail card and the Walmart retail card.

If you shop at a particular store often, signing up for a credit card with them might be a good idea. The benefits include extra cash back and point to use on entertainment, shopping, and dining as a way to say ‘thank you' for shopping there. Just remember to read the fine print. Retailer cards are created to encourage you to spend more in their stores to make sure there is a good points-to-rewards ratio.

The Best Rewards Cards in 2018

If you're looking for a rewards card for a specific reason, the following cards will yield the best rewards for their categories.

Best sign-up bonus: Chase Sapphire

The Chase Sapphire is a powerhouse rewards card for any purpose, but really stands out for its hefty singup bonuses, as well as points perks for travel and dining and exceptional value when redeemed to travel.

Another benefit of the Chase Sapphire is the lack of foreign transaction fees.

Best cash back: Chase Freedom

The Chase Freedom cashback card has a nice monetary incentive for new cardholders. That coupled with enticing intro APR offers make it a secondary choice for someone that needs to work off accumulated credit card debt.

Best no annual fee card: Capital One VentureOne Card

Annual fees usually aren't terrible (usually), but no one wants to pay fees if necessary. After all, if you aren't spending enough on your card, you may end up losing money. Capital One's VentureOne card offers competitive airline mile perks and incentives for spending in the early months of holding the card.

The lack of foreign transaction fees and 0% APR for 12 months is just icing on the cake. Another perk is price protection; if you purchase an item, but find it for a lower price within 120 days of the original purchase, Capital One will reimburse the price difference.

Best student card: Discover It for Students

The Discover It card allows college students to have more cash. It's a great introductory card. Not only does it provide a cashback bonus for good grades, but whatever you earn in cashback your first year, Discover will match. Rotating quarterly bonuses allow cardholders to earn exceptional cashback incentives on qualifying purchase.

While Discover isn't' as widely accepted as its counterparts, the Discover It card gives rewards that never expire. You can turn the card on or off in seconds. If you discover it's missing, just freeze the card from your phone — no one will be able to use it. And if someone does make an unauthorized purchase, you aren't responsible.

Best card for people with bad credit: Capital One Secured Mastercard

If your credit is less than ideal, it can be hard to qualify for a credit card, which can make it hard to repair your credit. This being the case, there are several secured card options worth taking a look at.

The Capital One Secured MasterCard requires a refundable deposit, which can vary based on your overall credit score. After initial deposit, a small credit line will be available to you. If you make your first 5 payments on time, then a higher credit line becomes available.

The Capital One Secured Mastercard is a great choice for someone looking to repair their credit with a no-pressure card. The card also provides benefits like many other cards, including fraud coverage, travel accident insurance, 24/7 roadside assistance and more.

Best card for people with fair credit: Capital One QuicksilverOne

The QuicksilverOne card from Capital One is a middle-of-the-road card for people with average credit.

It offers cashback incentives on every purchase, no reward limits and no expiring rewards. It's a solid choice for someone that needs an all-around card. If you meet the first five payment due dates, you're eligible for a higher credit limit.

There's a small annual fee, but it is hardly a prohibitive cost. Capital One provides a program called CreditWise to help you track your credit score and estimate how to best improve it, so if you want better than average credit, the Quicksilver One can help make that possible.

Best balance transfer: Chase Slate

Balance transfer cards are particularly useful for those struggling to stay on top of credit card debt. By transferring your balance to another card, not only do you free up the cards with outstanding balances (saving you the interest cost each month), but you gain a period of interest-free payments that will allow you to make progress towards reducing the principle. The Chase Slate card is a good one due to introductory APR incentives and lack of annual fee.

If you happen to miss a due date, it won't increase your APR. However, late fees still apply. The Chase Slate won the award for best balance transfer card 4 years in a row.

Want a Rewards Card?

Rewards cards can give you a little bonus at the end of each year in the form of cash back, free gas, shopping vouchers or frequent flyer miles. However, they're only a good value if you're not accumulating debt in the process. Make use of included features, set reminders on your calendar and take whatever steps you need to in order to best utilize your rewards card without missing a payment.

Finding the right card doesn't have to be complicated. Look for the features you'll use and make sure your rewards aren't costing you more than you're paying.

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The credit card offers that appear on this site are from credit card issuers from which receives compensation. This compensation may impact how and where products appear on this site, including the order in which they may appear within listing categories. does not include all credit card offers that might be available to consumers in the marketplace.

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Any opinions, analyses, reviews or recommendations expressed on this page are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.