What You Need to Know About Rewards Credit Cards

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What Are Rewards Credit Cards?
Rewards credit cards are those that offer incentives or spending. There are three main types of rewards credit cards: cash back, points, and airline miles.

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You’ve probably heard of credit card rewards, points, and perks. That might be something like cashback (money you get when you charge things to your card), airline miles, or hotel rewards points. With so many different kinds of rewards out there, it can get a little confusing. Mint is here to explain. Check out the list of topics below to review our guide to what a rewards credit card is, and whether a rewards credit card is worth it. 

Read on to find out everything you need to know about rewards credit cards. 

What Is a Rewards Credit Card?

A rewards credit card is just a credit card that offers certain perks for using it. In fact, most credit cards have some sort of rewards system. It might be discounts at a store (if it’s a store credit card), cashback on certain kinds of purchases (like online retail or gas stations), or airline miles that can be used to save when you purchase plane tickets. 

If you have a good credit score, you’ve probably received a credit card offer in the last few months advertising, in huge print, 5% cash back. The idea of tying a generous rewards program to a credit card isn’t revolutionary. Issuers have been offering more than the standard 1% for years, and many responsible credit card users have been paying off their balances in full each month and literally getting free lunch in the form of hundreds of dollars in cash back each year.

Types of Rewards Credit Cards

There are three main ways that credit cards offer rewards to customers:

  • Cash back: Cash back is exactly what it sounds like. When you spend money, you get a certain amount of cash back to your credit card account. For example, you might have a flat 2% cash back across all purchases, or 4% on select stores and vendors. This is a great, simple method for people who want rewards without having to plan or think about it.
  • Points: Points are similar to cash back, but rather than always being redeemed in the form of cash, points that build up over time (with purchases) can be redeemed in different ways. It might be cash back, or merchandise, gift cards, and more.
  • Airline miles: Airline miles are another innovative way to gain rewards. For those who travel often, this can be a particularly useful benefit. As you spend, you gain “miles” that can be put toward flights. For example, if you love flying Southwest, you might want to invest in a credit card that gives you points that can be spent on reducing the cost of your next flight with them. 

Browse top cashback credit card offers from our partners.

What Is the Best Credit Card for Rewards?

What credit card gives the best rewards totally depends on your spending style and what you ideally want to get rewards in. For example, if you don’t want to think about it or plan, a simple cash back rewards credit card might be the best option. You’ll go about your daily spending, then, each month, you’ll be able to put your cash back balance toward your credit card balance and effectively get a small discount on everything you bought that month. 

Often, you can use your cash back balance toward your credit card bill, reducing how much you have to pay out of pocket.

If you love little surprises and changes of pace, points could be best for you. Credit cards that offer a points-based rewards system might offer gift cards to your favorite retailers or restaurants, or might have deals to purchase tickets to events, and more. Plus, because they may be single or rotating-use, points can sometimes be more generous than generalized cash back. 

For frequent flyers, there’s nothing more convenient than knocking a few hundred bucks off this year’s flights by using airline miles credit card rewards. If you love to travel, are planning and saving up for a vacation, or travel often for business, credit cards with rewards miles are a great choice to maximize rewards

How Does a Rewards Card Work?

Rewards credit cards work by accruing points over time. When you spend money, a certain amount is automatically added to your rewards balance—whether that’s points, cash back, or miles. Then, when it’s time to redeem them, you can usually log onto your credit card’s web portal to access your balance. Or, for airline miles, you might choose to redeem while purchasing tickets online. 

The exact way you redeem them may vary depending on the card, so be sure to read the fine print or call customer service if you’re unsure how to access your accrued rewards. 

Rewards Credit Card Example

Let’s look at an example:

Let’s say the credit card offers 5% cash back in certain categories. Right now, from January through March, those categories are grocery stores and drugstores. You get 1% cash back in other categories, like a typical reward card. So that’s 4% bonus cash back (5% minus the 1% you would already get) on top of the usual amount. After a few months, you build up $140 in rewards points. You can use that $140 towards a statement balance, reducing your next bill.

Are Credit Card Rewards Worth It?

Whether a rewards credit card is worth it is totally up to your personal financial picture. In some cases, it’s definitely worth it—for example, if you’re a frequent flyer looking for a way to fund your next vacation or get a discount on your regular commuter flights. 

In other cases, it might not be worth it. For example, if you struggle with overspending on credit cards, knowing that you have rewards might tempt you to spend more than you otherwise would. That can lead to dangerous spending and overspending habits, so it’s important to keep in mind the psychology of credit card usage on top of the regular pros and cons. 

Potential Drawbacks to Consider

Rewards credit cards often sound great—except there’s also often a cap. You only get the cash back on up to $1,500 in purchases, for a maximum of $20 per month in bonus rewards. Furthermore, if you shop for groceries at a warehouse club or superstore, those purchases are usually ineligible (though they still earn 1%).

Rewards cards, as you probably know, tend to have higher APRs than regular (non-reward) credit cards. APR is the interest rate that your credit card charges. So, if you’re diligent about repaying your balance every month before the due date, a high APR might not be a problem. But if you struggle to keep tabs on your spending and credit card bill, the high APR could come back to bite you, potentially costing you more than the rewards points earned you in the first place. 

Need to deal with credit card debt before you think about getting a rewards card? Check out our credit card payoff calculator for instant insights. 

A Rewards Credit Card Could Be an Asset to Your Wallet

Are rewards credit cards worth it? Rewards credit cards are a great option for many consumers. However, it’s important to know how to spend wisely with a credit card, no matter what kind you get. Some things to keep in mind when it comes to rewards credit cards include:

  • Rewards cards offer different perks; usually, they’re in the form of cash back, airline miles, and rewards points that can be spent on different bonuses and goodies. 
  • Rewards accrue over time as you spend, then can be redeemed through your credit card company or through the company your credit card works through (like an airline company or department store credit card). 
  • They make a great choice for people looking to boost their savings, but like any credit card, spending wisely and carefully is a must. 
  • Because rewards credit cards may have a higher APR, they can be dangerous if you have a habit of missing bill payments or carrying a balance. 

Whether you plan to take a vacation, use rewards for your wedding, or just knock a few bucks off your next bill payment, a rewards credit card makes a great addition to your wallet. To keep track of your credit cards and your spending, it’s always a good idea to use Mint. The Mint app allows you to keep an eye on all your accounts across multiple cards, so no matter where you find yourself in your personal financial wellness journey, you’ll have an eye on everything you need to. Download it for free today and see how you can max out rewards while still keeping your spending smart and in check. 

Save more, spend smarter, and make your money go further