Credit cards that offer rewards like airline miles or a percentage of cash back on everyday purchases can be a pretty great deal. But with so many different rewards credit cards available, choosing one that’s right for your lifestyle can feel overwhelming. Not only that, are you sure a rewards credit card is a smart financial move for you right now?
First off: rewards credit cards are usually available only to those with good or great credit. If you’re new to building credit or have a credit score that has room for improvement, your best bet is to look for a credit card with a low interest rate and give rewards cards another look once you’ve boosted your credit score through good habits, like making timely payments and avoiding carrying a balance from month to month. “Rewards cards are really best for transactors: those who pay off their balance every month,” says Mikel Van Cleve, advice director for USAA.
That said, if your credit card history is superb and you make a habit of paying off the balance in full each month, then you’re probably ready for your first rewards card!
1. First, consider the kind of rewards you’d like to earn. If you’re a jet-setter and love to take frequent vacations, travel rewards cards that can earn airline miles, waive luggage fees, grant access to posh airline lounges and more might be right up your alley. Not the globe-trotting type? Then a cash-back rewards card might be more your style. These essentially give you a small percentage discount (anywhere from 1% to 5%) on the stuff you’re already buying with your credit card, like groceries, gas, online purchases, and more.
Once you’ve identified the type of rewards you’d like to earn…
2. Match your spending habits to your overall rewards card management. Take a look at how much you actually spend in certain categories on an annual basis to pinpoint where you could earn the most rewards. If you’re single and eat out a lot, a card that offers extra cash back for grocery spending might not be the best fit.
Plus, not all rewards cards work the same way: some offer more complex variations, such as 3% at supermarkets and 1% on all other kinds of purchases.
Other kinds of rewards cards offer additional percentage points on a rotating calendar for certain types of purchases, with bonus categories changing every quarter. For example, you might earn 5% on groceries one quarter, 5% on gas the next quarter, 5% at restaurants for another quarter, etc.
Complex earning structures may ultimately earn you more, but only if you’re really familiar with your own spending habits and the amount of time you care to spend tracking expenses and managing rewards redemption. Depending on the card you choose, you’ll need to keep up with rotating categories that may require an opt-in action (like visiting a website or filling out a form) every quarter, or you miss out on the perks. If you don’t want to hassle with that, consider choosing a card with a flat base earning rate. Many credit cards now offer 1.5% or even 2% on every purchase you make. For instance, if the card offers 1% cash back for every dollar you spend on the card and you’ve spent a total of $2,500, you can earn $25 cash back. Even better, you often have a choice on how to spend those rewards, usually via a check, a credit to your statement or points good toward purchases with other retailers. (Beware the latter, as it may encourage you to spend needlessly!)
3. Examine the fine print of any offers you see. Does the card charge an annual fee that costs as much or more than you will likely earn back via rewards? If you feel pressured to spend more just to get enough rewards to justify the annual fee, that card might be causing you to spend more than you normally might. Does the card place limits, or “cap” how many rewards you can earn in bonus categories? Some cards allow you to earn 3% on only the first $3,000 a year you spend on groceries, and after that rewards may diminish or disappear entirely. You’ll want to factor those considerations in to your decision.
“Make sure you know how the cards you’re considering work, and figure out which one works best for your habits,” advises Van Cleve. “If you do that, the rewards can really help you save some money and work toward other goals that you have.”
Interested in finding out which card is right for you? Check out the Credit Card Recommendation Tool .
This credit card program is issued by USAA Savings Bank, Member FDIC.
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