Rewards credit cards allow people to earn rewards when they purchase with their cards. By using a rewards card for your everyday spending, the rewards can quickly add up, helping you get closer to your next vacation or big purchase. Here, we explain what a rewards 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 to 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 the majority of your money on? This can help you determine what type of rewards card is best for you. For example, do you prefer to earn cash back or travel rewards?
Cash back is straightforward and offers more flexibility, as it can be used for things other than travel. Travel rewards can vary.
Flexible currencies like American Express Membership Rewards points and Chase Ultimate Rewards points can be redeemed for travel through each issuer's travel portals or can be transferred to travel partners.
Often, cards that earn travel points also let you convert your points to cash back. However, we don't recommend this as the redemption rates for this method are usually poor. For example, Amex Membership Rewards points can only be converted into cash back at a reduced rate of 0.6 cents per point.
When redeeming, I recommend that you aim for a minimum of 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.
Daily Newsletter
Reward your inbox with the TPG Daily newsletter
Join over 700,000 readers for breaking news, in-depth guides and exclusive deals from TPG’s experts
Lastly, many reward credit cards charge an annual fee. These fees can vary greatly 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 are applying 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 declined and you believe it should have been approved, the card issuer may have a reconsideration line that you can call and ask to reevaluate your application. It is also important to note that some cards have application restrictions that could prevent you from getting approved.
Related: What is a good credit score?
How to maximize credit card rewards
One way to maximize credit card rewards is by using multiple rewards cards to take advantage of bonus earnings in multiple spending categories.
For example, you could combine the American Express® Gold Card and the Capital One Venture Rewards Credit Card. Use the Amex Gold for dining worldwide as it earns 4 Membership Rewards points per dollar spent. You should also use the card for grocery shopping at U.S. supermarkets as it earns 4 Membership Rewards points per dollar spent, up to $25,000 of spending annually, then 1 point per dollar.
The Capital One Venture Rewards earns 2 miles per dollar spent across the board, so you could use this for the remainder of your spending.
There are many ways to combine two or even three rewards credit cards to maximize rewards.
Related: Better together: The ultimate guide to the best credit card combinations
Bottom line
A rewards credit card allows you to earn rewards on almost all of your spending. Remember that the right card should fit your lifestyle, and if there is an annual fee, make sure it's justified. When used properly, the rewards you earn from credit cards can be a great way to kickstart your next trip or save you money.
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.
