Bottom line:
- Credit card rewards can work for you, as long as you continue paying off your balance every month.
- Opting for cash back is usually the simplest, easiest way to enjoy rewards.
- If you carry a balance on your card, interest and other fees can quickly overtake any rewards you’ve earned.
- Rewards are a fun bonus, but most important is choosing a credit card that makes sense for how you make purchases every day and helps you reach bigger financial goals.
There’s seemingly no end to credit cards that offer some kind of reward, whether it’s cash back, travel miles, or bonus points to spend on products and services. If you’re new to having a credit card, getting cash back is usually the reward that’s easiest to understand and most flexible to use.
How credit card rewards work
You’ll rack up rewards based on what you buy with your credit card. If your card offers travel points or miles, you’ll earn rewards to spend on airline travel, rental cars, hotels, and dining. Flat-rate cash-back cards give you the same percentage back on all purchases, while other cards offer a different percentage of cash back depending on the category, such as 3% cash back on gas, 2% on dining, and 1% on other purchases. So if you spend $50 to fill up the tank, $1.50 will go back to your rewards total.
When you’re ready to use what you’ve earned, your options for spending will depend on the card and the type of reward. You might be able to:
- Apply them to your monthly credit card bill statement (as mentioned, the “cash back” option is the simplest way to use rewards)
- Spend them at eligible retailers and merchants
- Use travel miles to help pay for a trip
As long as you keep your account open, your rewards should continue to grow. That said, it’s worth checking the terms of your card, as rewards may expire if you don’t use them by a certain date.
Choosing the right card for rewards
No doubt you’ve seen the enticing incentives for rewards credit cards — “sign up and earn 80,000 bonus points!” — but the bigger the incentive, the greater the requirements. For example, to qualify for a bunch of bonus points you might need to spend several thousand dollars during the first six months you have a new card. If you’d charge that amount anyway over that period, getting the card could still make good sense (why not earn rewards while you’re at it, right?), but if you have no plans to spend that much, it might not.
To find the right rewards card, start by considering what kind of perks are most important to you: Do you picture yourself beachside in Tulum? Earning a little extra to help pay for everyday purchases like gas and groceries? Shopping at your favorite stores? Focusing on cards that align with your current spending habits will narrow the field.
You’ll also want to know if rewards expire if you don’t use them and which partners the card issuer works with. If you don’t see retailers you know you want to buy from, the rewards might not mean as much.
When rewards are truly rewarding
Using your points to upgrade a flight or celebrate over a world-class meal is satisfying, no question about it. Done right, credit card rewards can put some memorable experiences within easier reach.
But it’s worth mentioning another kind of reward: A well-managed credit card — regardless of the points, miles, or cash back it offers — is one of the fastest ways to build a strong credit history. As long as you pay your monthly bill in full on time every month, your card will get you closer to your financial goals, whether that’s building good credit toward a big purchase like a home or car or simply feeling financially stable and able to make the choices you want to make, when you want to make them. Rewards, then, just become icing on the cake.
Explore more about credit cards
Learn more about applying for a CEFCU credit card and explore these resources that help answer common questions about credit cards and building good credit:
►How do credit cards work?
►How do credit card payments work?
►What’s the best first credit card for me, and how do I get started?
►How do I use a credit card so it helps my credit instead of hurting it?
►What happens if I can’t pay my credit card, and how bad is credit card debt, really?
