As credit card companies try to draw a market share and convince people to use credit over debit or cash, more and more credit card rewards programs are popping up.
In addition to ongoing rewards, many cards offer significant signup bonuses, providing customers a lump sum of points or miles for utilizing the card for a preset amount of purchases in a certain period.
Rewards cards can be very beneficial when used properly, offering discounts, benefits, and savings on purchases you typically make anyway.
| Best Rewards Cards | |
| Best Card For… | Card Name |
| Simple Cash Back | Citi Double Cash Rewards Card |
| Rotating Categories of Rewards | Discover it Credit Card |
| Groceries and Gas Rewards | Chase Freedom |
| Dining Out | Uber Visa Card |
| Amazon.com Rewards | Amazon Prime Visa Signature Credit Card |
| Category Choice | US Bank Cash Plus Visa Signature Card |
| Average to Fair Credit | Capital One Journey Student Card |
| Bad Credit/New Credit | Discover it Secured Credit Card |
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What to Expect from an Excellent Rewards Card
When shopping for rewards cards there are quite a few aspects to consider, including:
- Usability: If you do not use your rewards card, it will likely not prove worthwhile. Choose a card you will use often, based on your spending behaviors.
- Annual Fee: Not all rewards cards have annual fees, but many do. Annual fees do not necessarily mean it is not a good card for you, but you must consider if your spending habits will allow you to earn more than the fee costs.
- Cash Back: Cash back is a popular reward but there is quite a bit of disparity in the amount cards offer. It is vital to weight whether a rotating cash back at a higher percentage is better for you than a more flexible cash back program with a lower cash back rate.
- Signup Bonuses: There are so many signup bonuses that it may be the decision maker between similar cards. Keep an eye on the required spending level to ensure you can reach that number with your budget and spending habits.
- Introductory APR: A period of interest free credit is always a plus, especially if you intend to rack up charges to reach your signup bonus amount. If combined with a balance transfer option, this can also help pay down debt faster.
| Best Store Cards | ||
| Typical Credit Rating | Card Name | Annual Fee |
| Fair or Average | Kohl’s Charge Credit Card | $0 |
| Fair or Average | Target REDcard Credit Card | $0 |
| Good | Amazon Rewards Visa | $0 |
What to Expect from a Great Store Credit Card
Like other rewards cards, stores offer unique features to consider. Some things to evaluate when considering your favorite store’s card offering:
- Rewards vs. Fees: Many store branded cards offer far better rewards when shopping at their stores. As always, evaluate how often you will use the card at its branded store to ensure it is worth any cost you may have to pay.
- Consider General Cards: Being limited to earning extra rewards at one store can make a store card less beneficial than a general rewards card that offers rewards everywhere. Always evaluate if there are better options in non-branded cards.
- Annual Fees: Lots of stores offer branded cards with no annual fees, however, if your preferred choice does make sure you are covering the fee by purchasing enough to earn offsetting rewards.
- Signup Bonuses and Perks: Store cards often come with perks like free shipping. Keep these extras in mind when comparing cards.
- APR: Store cards notoriously have well above average APRs. Consider this before committing to a card, certainly if you struggle to pay your balances each month.
| Best Gas & Grocery Rewards Cards | ||
| Typical Credit Rating | Card Name | Annual Fee |
| Excellent | Chase Flex | $0 |
| Good | Capital One Quicksilver | $0 |
| Good | Bank of America Cash Rewards | $0 |
| Fair | PenFed Platinum Rewards VISA | $0 |
| Good | Chase Freedom | $0 |
| Excellent | Citi Premier | $0 |
General Rewards Cards
There are two major groups or types of rewards cards. First, there are cards with fixed rewards categories and provide points or cash back for the same type of purchases year-round (think: 2% cash back on fuel purchases or 6% back on groceries). Alternatively, there are rotating category cards that change rewarded purchase types quarterly (5% on gas first quarter, 5% on groceries second quarter, etc.)
Reward Distribution
Most rewards cards offer incentives in one of the following methods:
- Point redemption as statement credit or for purchase of gift cards
- Straight cash back percentage on purchases (applied to your balance)
- Point redemption at specific retailer (typical with store branded cards)
- Miles redeemable for travel and discounted travel
- Point redemption at branded hotels and discounted travel
Rewards Cards and You
Finding the best reward card should start with a little self-reflection. Evaluating how you spend and where you frequently shop will lead you in the right direction. Travelers lean toward travel cards, global shopping habits are best for general rewards, and store branded cards are great for brand loyal shoppers.
It is important to realize that rewards cards are not designed to trap you in to spending on things you typically would not purchase. In fact, the consumer can take full advantage of the rewards that credit card companies offer. In some cases, utilizing two different rewards cards could be beneficial.
Taking Advantage of Two Rewards Cards
Using multiple rewards card may seem complicated but can prove advantageous to the savvy spender. If one card is offer 3% back on gas as its reward, while another offers 1.5% back on any purchase, then using the gas card for gas and the other card for everything else makes obvious sense.
Dealing with Rotating Categories
A card with rotating categories is the perfect pair with a card that offers cash back on all categories. If gas happens to be the category of the quarter, put your gas purchases on the higher interest card while you put general purchases on your other card that offers 1.5% for all purchases.
Travel Card Considerations
If you are a frequent traveler, meaning someone who travels several times a year, then a travel specific rewards card may be something to consider. Travel cards tend to offer superior rewards plans that can be redeemed for steep discounts on future excursions. However, it is important to keep in mind that many of these cards require steep annual fees.
Some cards require an annual fee of $550 but offers its cardholders access to luxury airport lounges, $200 in airline fee credits per year (think: baggage fees), automatic enrollment into the HHonors Gold program, and many more valuable benefits to travelers. While the high annual fee seems cumbersome up front, if you travel and will take advantage of their countless benefits, it pays itself off quickly. In addition, the generous rewards program associated with a card like this will be advantageous to regular travelers.
Airline and Hotel Co-Branded Cards
If you find yourself flying one airline or staying at the same hotel, you may take advantage of a co-branded card. These cards offer great rewards and discounts to cardholders to ensure brand loyalty from them.
These cards tend to offer perks like priority boarding, free checked bags, free hotel stays, and late checkout opportunities. If you find yourself traveling and staying with the same brands, a co-branded card will help you earn rewards quickly.
The Truth About Retail Cards
Retail stores across the country use a common tactic to encourage you to apply for their cards: a discount on one purchase. It is vital that you do not open a line of retail credit simply to save 10% on your everyday purchase.
It is best to save these special offers for a large purchase, like furniture or appliances. Then, if necessary, you can cancel your card after paying off the item. This will allow you to obtain the discount on the large purchase, while avoiding the temptation of charging items on a retail card that typically has an extremely high APR.
However, if you are going to utilize this method, make sure your credit score is high enough to take the hit for closing an account shortly after opening it. Remember, getting your credit checked creates a small dip and closing a card at such a short credit age can also impact your score slightly negatively.
Retail cards can be beneficial for those that shop at said store frequently, but also present challenges that general rewards cards do not. Here, we will examine retail store credit cards closely to help inform your decision.
Retail Store Cards: The Pros
- Lenient Qualification Requirements: Store cards can often be easy to qualify for because of their extraordinarily high APR (in the mid to high 20% range). Typically, these cards have low credit limits as well. Thus, a retail card can help you improve your credit quality even with an average credit score.
- Learn Credit Responsibility: Given their lenient qualification standards and low credit limits, store retail cards are the perfect opportunity to practice good credit habits.
- Store Rewards: If you frequently shop at the same store or make big purchases somewhat often at a store, then the specific rewards these cards offer could be a good idea to take advantage of.
- Regular Perks: Some of the under the radar perks that these cards offer, like birthday discounts, exclusive offers and pre-notification of sales, can add up quickly if you frequently shop at a particular store.
Retail Store Cards: The Cons
- Extraordinarily High APR: The bulk of retail cards offer interest rates of around 25%, while general rewards cards typically hover around 15% APR. If you plan on maintaining a month to month balance, you might consider a less interest heavy card.
- Low Credit Limits: While this could be a benefit for those who struggle to manage their credit, a low limit makes it difficult to make large purchases and does not help your overall credit utilization.
- Restrictive Uses: Retail cards are often only valid at the store the card is branded with. While some are co-branded with a major credit company like Discover or VISA, those that are not are extremely restrictive in your ability to use them.
- Hard Inquiry Rules Apply: Even though the credit limit may be low, and the interest rate may be high, a hard inquiry will still apply to your credit score. Think twice when a cashier encourages you to apply for a retail card for a simple discount. Is it worth the ding to your credit score? If you have a lower score or are anticipating needing a loan or other credit approval soon, it may be best to avoid applying.
- Service Issues: Some retail cards lack major card issuer supports – like a quality customer service line or fraud protection. Investigate this issue before applying.
Responsible Retail Card Use
- Pay it Off Immediately: More than any other card, a high balance on a retail card can send you into a debt spiral quickly. The high APR can add up fast if you allow a balance to carry over from month to month.
- Budget Wisely: A retail card is not an excuse to make extraordinary expenditures at the store the card is branded with. Keep with your typical budget and avoid the temptation to load these cards up simply because you can.
- Do Not Fall for the Offer: If you are offered a “10% off this purchase if you apply for a retail card” spiel, make sure your purchase is substantial. 10% off a $100 purchase will hardly cover the tax, so it is not worth the hit to your credit score. However, if you purchase is in the $1000 plus range, then it may be worth considering the value of applying for a retail card.
Conclusion
When handled appropriately, there are many reasons to procure a rewards card that suits your spending habits and needs. It is important to evaluate who you are as a consumer and ensure that the card fits you specifically. Once you find a rewards card that works for you, you may be astounded at how quickly your benefits add up!