Credit cards can be a double-edged sword. If you use them to spend more than you can pay back and carry a balance, you can get stuck with high-interest debt for months or even years to come.
But if you use them responsibly, you can gain an incredible amount of value without changing your spending habits.
Rewards credit cards offer consumers an opportunity to get value in the form of cashback, points or miles. With the right rewards card in your wallet, you can get some extra spending money, free travel and more. Our list of the best rewards credit cards highlights a number of credit cards that you could consider.
- Rewards credit cards can give you value back every time you use them.
- Credit card rewards typically come in the form of cashback, points or miles.
- The right credit card for you depends on your credit score, spending habits and preferences.
- In some cases, it may be worth getting a card with an annual fee.
How to Earn Rewards With a Credit Card
Not all credit cards offer rewards. For example, many cards designed to help people build credit or pay down debt interest-free eschew this valuable perk.
If you have a rewards credit card, however, here are some of the ways you can get value from it.
- One-time bonuses: Many rewards credit cards offer one-time bonuses as an incentive to apply. Depending on the card, this bonus could be worth just a few dollars or as much as $1,000 or more. To qualify for this incentive, you may need to meet a minimum spending requirement within a set period.
- Everyday spending: Most rewards credit cards offer cash back, points or miles on every purchase you make. While some cards offer the same rewards rate on every purchase, others may give you bonus rewards on certain spending categories. If you add an authorized user to your account, their purchases will also generate rewards.
- Annual bonuses: Some credit cards offer yearly bonuses when you renew your credit card account each year. The incentive may be a flat amount or based on your spending during the previous year.
Some transactions don’t generate rewards
In most cases, cash advances, balance transfers, interest charges, person-to-person payments and the purchase of prepaid debit cards, certain gift cards, and other cash equivalents may not be eligible for rewards.
How Rewards Programs Are Structured
Credit card issuers typically structure their rewards programs in one of three ways: flat-rate rewards, tiered rewards or rotating rewards. Here’s how each arrangement works:
- Flat-rate rewards: With this type of credit card, you’ll receive a flat rewards rate on every purchase you make. These cards are best for credit cards users who prefer simplicity or don’t spend a lot in any one area.
- Tiered rewards: These credit cards offer bonus rewards on certain spending categories, such as groceries, gas or restaurants, and a base rate on non-bonus spending. Depending on the card, there may or may not be an annual cap on how much you can earn in bonus rewards. Tiered rewards cards are best for cardholders who spend a lot in one or two areas where they can earn bonus rewards.
- Rotating rewards: Only a few credit cards have this rewards structure. Like a tiered rewards credit card, you’ll earn bonus rewards on certain spending categories — typically capped — but those bonus categories change every few months. These cards are best for people who spend a lot in areas that match their card’s rotating categories.
Among these rewards programs setups, there’s no best option for everyone. To find the right one for you, consider your spending habits and preferences. If you want to maximize your rewards and don’t mind a little complexity, a tiered or rotating rewards card with bonus categories that align with your spending may be worth considering.
But if you don’t want to spend any more time than is necessary on your credit card decisions, a simple flat-rate rewards card may be the best choice.
Types of Rewards Credit Cards
The rewards rates you earn on your purchases is an important consideration. But more important is the type of rewards you choose to earn. Most rewards credit cards can be split into two groups: cashback and travel. Here’s what you need to know about each option.
Cash-Back Credit Cards
As the name suggests, cash-back credit cards offer rewards in the form of straight cash.
While cards can vary, you can typically redeem your cash-back rewards in the form of a direct deposit, statement credit or paper check. Some cards may even offer the chance to use your rewards to buy gift cards and merchandise, shop online, book travel and more.
Watch out for redemption minimums
Some cash-back credit cards require that you have a minimum amount of rewards before you can redeem. With cards that have this requirement, you’ll typically need $20 or $25 before you can cash in.
Most cash-back credit cards don’t charge an annual fee, and many of them come with introductory 0% APR promotions on purchases, balance transfers or both. That said, they usually don’t offer as many perks as travel credit cards. Also, sign-up bonuses typically range from $100 to $300.
Cash-back rewards credit cards are best for people who want the simplicity of cashback and don’t mind trading fewer benefits for no annual fee.
Travel Rewards Credit Cards
Travel credit cards offer points or miles that you can use to book free travel. While the terms “points” and “miles” sound like they represent different types of rewards, they’re largely synonymous.
For example, “miles” are usually associated with frequent flyer programs. But JetBlue Airways and Southwest Airlines both use the term “points” for their rewards currencies. And while “points” are more commonly used among general travel rewards programs, some general travel cards use “miles” instead.
In contrast with cash-back credit cards, most travel credit cards charge an annual fee. However, many of them offer sign-up bonuses worth hundreds of dollars, some as high as $1,000 or beyond.
There are three types of travel rewards credit cards: general rewards, airline, and hotel.
General Travel Rewards Credit Cards
General travel credit cards aren’t tied to a specific travel brand like an airline or a hotel. Instead, you’ll earn points or miles with the card issuer’s proprietary rewards program.
Depending on which card you choose, you may have one or more of the following options when redeeming your general travel rewards:
- Booking travel through your card issuer: Some card issuers have a booking platform that functions similarly to travel websites like Expedia and Orbitz. With this option, you can use your rewards to book travel without ever leaving your rewards account. This option simplifies the redemption process, but your selection may be limited, making it hard to ensure you’re getting the best deal.
- Booking travel with third-party travel merchants: With this option, you can use your card to book travel with any eligible travel merchant, then use your points or miles to get partial or full statement credit against the transaction. This option gives you a better chance to price shop and get the best deal, but it is possible for something you think it travel-related to be ineligible for redemption.
- Transferring rewards to other travel programs: Some rewards programs allow you to transfer your hard-earned points or miles to other travel rewards programs, typically with airlines or hotels. This can give you some extra flexibility to get the right redemption for your specific travel plans.
General travel rewards programs typically assign a set value to your rewards currency, usually 1 cent per point or mile, but sometimes less or more than that. While this makes things simple, it could limit the amount of value you can gain from your card.
While most general travel cards don’t offer airline- or hotel-specific perks, some offer other benefits, such as travel statement credits, complimentary airport lounge access, various travel insurance protections and more.
Airline Credit Cards
A co-branded airline credit card allows cardholders to rack up points or miles with a specific frequent flyer program. Unlike general travel rewards programs, airline programs have a dynamic pricing structure. This means that the value of your points or miles can vary based on how and when you redeem them.
More specifically, valuations can vary based on the fare class, flight dates, departure and destination cities, cash price of the ticket and other factors. While this is more complicated than a set valuation, it makes it possible to squeeze more value with the right redemption strategy.
Airline cards don’t offer as much flexibility as general travel rewards cards — you’ll almost always get the most value out of your rewards when using them for free flights.
But along with their rewards programs, these cards often offer airline-specific perks, such as:
- Free checked bags
- Priority boarding
- In-flight discounts
- Airline lounge access
- Complimentary companion passes
If you’re loyal to a specific airline, having its co-branded card can add value every time you fly. If, however, you prefer to be a free agent and simply choose the most inexpensive flight available, spending all your time racking up rewards with just one airline may not be worth it.
Hotel Credit Cards
Like airline credit cards, hotel credit cards are co-branded with a specific hotel chain, with which you’ll earn points you can redeem for free stays.
And as with frequent flyer programs, the value of your hotel points can vary based on several factors, including the hotel property, the dates of the stay, cash price of the room and more.
On top of a rewards program, many hotel credit cards offer automatic elite status, as well as a free anniversary night’s stay. While the value of this free stay is usually limited, it’s often worth more than the card’s annual fee, making it easy to justify holding onto the card, even if it’s not your primary payment method.
Hotel credit cards make sense for people who are loyal to one hotel brand, or who want the benefit of a free night’s stay they can rely on every year. It may not make sense, however, if you don’t want to be tied down to a single chain.
Why Rewards Credit Cards Are Worth it
Earning a small percentage back on your everyday purchases may not sound like it’s worth the danger of going into debt. And if you’ve struggled with credit card debt in the past, having another card may not be worth it.
But if you’re a disciplined spender, even a small rewards rate on every purchase can add up to hundreds of dollars every year. Add in a sign-up bonus and other perks, and you can get a lot of value without changing your spending habits.
You won’t get rich on credit card rewards, but you can get a decent amount of extra money to spend on your next vacation or, in the case of cashback, anything else you want.
How to Know if an Annual Fee Is Worth it
Credit card annual fees aren’t inherently bad, and some annual-fee cards can offer a lot more value than cards without that yearly cost.
But before you apply for a new card with an annual fee, take some time to run the numbers to make sure it’s worth it. Compare the card’s yearly cost to the value you gain through its bonus rewards program and other benefits.
Also, consider benefits that aren’t easily quantifiable, such as the perks of hotel elite status or peace of mind of trip protections, that can make an annual fee worth it.
Compare the net value you can get from a card with an annual fee with that of a card that doesn’t charge one. If you can get more net value from a card with no annual fee, opt for that instead.
How to Choose the Right Rewards Credit Card for You
There is no single best rewards credit card out there for everyone, so it’s important to know what you’re looking for to find the best fit. Here are some factors to consider:
- Your credit score: Most rewards credit cards require that you have good or excellent credit, which typically starts at a FICO score of 670. If your score is below that, you may be limited in your options, and travel rewards may be out of the question entirely.
- Your spending habits: Because different credit cards offer varying rewards structures, it’s important to know how you spend your money. Choose a card that offers bonus rewards on your biggest spending categories. In some situations, it may be worth getting more than one rewards card to maximize your rewards on all of your spending.
- Your preferences: As you consider which card is best suited for you, think about what kind of rewards and features you want. For example, do you prefer the simplicity of cash back or do you want to potentially get more value out of a travel card? Also, are you generally fee-averse, or are you fine with a fee as long as you can get more net value through better rewards and perks? Think about these and other preferences when you’re comparing rewards credit cards side by side.
Again, there’s no one-size-fits-all answer to the question, “Which credit card is best?” And the right credit card for you can change over time as your credit score, spending habits and preferences change. Focus on what’s the best fit for you now and be open to other options in the future.
Responsible Credit Card Use Is Crucial
Earning credit card rewards is nice, but if you’re overspending or paying interest for the privilege, you’re likely losing more money than you’re getting back.
To maximize your credit card rewards, it’s essential that you pay your balance in full every month. It’s also helpful to use a monthly budget to help you avoid spending more than you have in your checking account at the end of the month.
If having a credit card tempts you to overspend or you’ve had issues with credit card debt in the past, a rewards credit card might not be for you. But if you are a disciplined spender and can manage one or more credit cards well, having a rewards card can make sense.