By Randi Gollin | American Express Credit Intel Freelance Contributor
5 Min Read | November 30, 2020 in Cards
Rewards credit cards generally fall into three buckets: travel rewards, cash back, and rewards points cards – and there are multiple choices for each.
Make the most of credit card rewards by choosing a card that aligns with your lifestyle, monthly expenditures, and credit score.
Does it make financial sense for you to pay to own a rewards card? While many cards waive or forego the annual fee, others can charge up to several hundred dollars.
If you’ve ever applied for a rewards credit card – or own one or more – chances are you know all about cash back rewards, travel rewards, and rewards points cards, plus their various offshoots that offer flight rewards, hotel rewards, bonus points, and other perks. With so many to choose from, how do those who are new to this scene determine which is the best rewards credit card for them?
For starters, examine your lifestyle and determine what you spend your hard-earned dollars on. Then, you look for the cards whose rewards best match your preferences and spending levels.
Let’s say you’re a frequent traveler who prefers to fly in style and stay at swank hotels with splashy spas and luxe amenities. A travel rewards card may be the most rewarding credit card for you. Your best friend? She’s a different story. She’s got a large family that’s always hungry and always on the road. She might benefit from a card that lets her accumulate generous cash back or rewards points every time she buys groceries, shops online, and fills up the gas tank.
There’s no one-size-fits-all – no single rewards credit card that will accumulate the most rewards across the board, because everyone has different priorities, living habits, and a different credit score. Here are some guidelines to help you pick the best credit card with the most rewards for you.
Dreaming of your next family vacation, romantic getaway, or friends reunion? Filling your calendar with nonstop travel plans? Then a travel rewards card may be the way to go. For frequent travelers, there is little that compares to the feeling of redeeming travel rewards for all or part of your flights, hotel rooms, vacation packages, luxury upgrades, and other advantages. Bear in mind that taxes and fees apply, even if you have enough points for “free” bookings.
Top travel rewards credit cards may not be a free ride – they usually require annual fees from about $75 to $550 and good credit scores, in the 670 to 739 range, for starters.1 What’s more, they come in several categories: general travel, airline, and hotel credit cards.
General travel rewards programs offer the most flexibility as to where you stay and who you fly, usually allowing you to transfer rewards to participating hotels and airlines, exchange rewards for cash back, or book directly. Before redeeming, do the math to make sure you’re earning at least 1 cent per point – the value per point that most experts agree on.2 Simply divide the cost you’d pay in dollars if you were buying the reward by the number of points needed. For instance, if you get $500 in travel statement credit in exchange for 50,000 points, that means your point value is $500/50,000, or 1 cent. Blackout dates and availability restrictions might also be booking considerations.
If you’re faithful to a particular airline or hotel chain, the best rewards credit for you may be one that earns points or miles with that solo brand only. With these cards, the perks can sometimes surpass those of general travel rewards cards.
According to the Consumer Financial Protection Bureau’s Consumer Credit Card Market Report for August 2019, cardholders prefer cash back credit cards, even though other types may offer higher redemption value in reward points or miles. Why? Probably because cash rewards programs offer simplicity and flexibility.3
Cash back credit cards could work for nearly anyone, from couples and singles who like to wine, dine, and frequent their favorite coffee shops, to large households that constantly shop and road trip, well, everywhere. How it works: Every eligible purchase you make, from a state-of-the-art flatscreen TV to a plush sofa, may earn cash back rewards points, sometimes also called rewards dollars, that you typically cash in as a statement credit.
Cash back credit cards commonly offer sign-up bonuses as well. To qualify for those, you must spend a minimum amount – which can be $1,000 or more – in an initial period after you first get your card, usually the first three months. As long as you’re spending, you’re chalking up rewards. If there’s a cash back cap, either in general or in individual categories, it usually resets quarterly or yearly or may even expire at a certain date. And while the typical rate for cash back rewards is between 1% and 2% of purchases, some can go as high as 6% in a specific category, such as groceries. If a cash back card offers a 1% cash back rate, you’ll earn 1 cent for every dollar you spend. Spend $1,000, you’ll earn $10.4
Finally, there’s a category of standard rewards points cards with which you accumulate points for spending money and then can redeem those points in a large variety of ways, with the specifics different for every card provider. Some rewards points cards can award you thousands of bonus points after you’ve crossed the minimum expenditure threshold in the initial time period and paid the annual fee. You can use those points, for instance, at checkout with select online merchants to buy goods or gift cards, at grocery stores, or when booking travel. You can even donate points to charitable causes, transfer points for rewards with travel partners, and more. If you shop, dine, and travel, the sky is almost the limit with a rewards points card. Note that the value of rewards points may vary more than with other cards, depending on how you choose to use them.
With so many rewards credit cards and so many seemingly great offers, it’s hard to choose the most rewarding credit card. Before settling on one card, compare rewards card offers, bearing in mind their variable APR terms and card fees. The best rewards card is the one that you will use over and over again, the one that fits your lifestyle, monthly spending, and credit history.
1 “What Credit Scores Do Travel Cards Require?,” Experian
2 “Redeeming Credit Card Travel Points: What You Need to Know,” ValuePenguin
3 “The Consumer Credit Card Market August 2019,” Bureau of Consumer Financial Protection
4 “How do Cash Back Credit Cards Work?,” Money Under 30