How To Calculate Credit Card Rewards

Estimated read time: 4 minutes

Credit card rewards are an integral part of the credit card landscape. However, not all credit card rewards programs are created equal. There are dozens of variations and each one has its own little quirks. Understanding these differences, and how they affect you, can help you choose the right credit card for you.

Realize They All Have Limitations

The first thing to understand is that credit card rewards programs are all limited in one way or another. There is no one perfect card for everyone. You will never find, for example, a card that gives you 5% cash back on every purchase for the life of the card, airline miles, lots of concierge perks, and has no annual fee (and if you do find such a card, run far away; it’s likely a scam). However, it is possible to find cards that give you as much as 2 to 3% cash back on all purchases, even though these may have annual fees attached to them. It’s also possible to find cards which offer airline miles. Some airline cards even double and triple miles at certain specified locations; though again, these cards will carry a fee and may lack some other features that you happen to want in your credit card rewards program.

No Fee Cards Are Few And Far Between

In fact, there are very few no fee cards offering significant credit card reward programs. While it is possible that you could find such a card, they are relatively few and far between and generally reserved for those with the most impeccable credit scores. Therefore, when considering a rewards card, it’s important to calculate how much money you’ll save or earn from the rewards as compared to how much the card will cost.

Always Check Interest Rates

Banks need to make money from somewhere when they issue credit cards. One of the primary ways they do this is from interest on your balance. This is especially true with cards that carry rewards programs. Companies offering rewards programs not only have to pay for the program, the interest rates are often somewhat higher with rewards cards so the company will be profitable.

Look For Rewards You Use

Although it may sound tempting to get those airline miles, if you’re not really into flying much, the airline rewards credit cards may be a waste of money. Consider credit card reward programs that offer you cash back or points toward something you use often, such as fuel, food or entertainment.

Watch That Cash Back Program

When looking for a cash back card, remember that the amount is either going to be fairly small (typically 1-2%) or it’s going to be limited in time or locations (some 5% cash back programs are offered only for a limited time or are limited to specific locations which pay to be members of the program). This makes sense considering banks only earn around 2-3% on purchases you make. Look for cash back programs that include places you routinely shop.

Sometimes Plain Credit Cards Are Better

Don’t be afraid to forgo a credit card rewards program if the alternative is a better deal for your needs. A no-fee credit card with a low interest rate (if you can get one) might be the best option for your situation.