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You can use a rewards credit card to get valuable miles, points or cash back on all your purchases, and additional perks or benefits for being a cardholder. However, rewards cards also tend to have higher interest rates than non-rewards cards, and the incentives could lead some people to spend more than they would otherwise. Learning about the different types of rewards cards, as well as the benefits and the drawbacks, could help you decide if a rewards card is worth it for you.
What Is a Rewards Credit Card?
- Cash back: A cash back credit card will let you accrue cash rewards based on your purchases. You may be able to redeem your cash back for a statement credit to offset credit card purchases, a check or funds deposited into a bank account.
- Points: Rewards points are either part of the card issuer's rewards program or an affiliated rewards program, such as a hotel or retailer loyalty program. Depending on the program, you might be able to redeem your points for different rewards, such as travel, cash back, gift cards or merchandise.
- Miles: Rewards miles are the same as points, but airline credit cards and a few card issuers' rewards programs use "miles" as their rewards program's currency. You trade these points in for discounts on flights, or even an entire plane ticket.
In addition to the three common types of rewards, most rewards cards structure their rewards program in one of four ways:
- Flat-rate rewards: Earn the same amount of rewards (for example, one point, mile or cent per dollar you spend) on all your purchases.
- Tiered rewards: Earn bonus rewards when you make purchases from certain merchants or within specific categories, such as dining or travel.
- Rotating bonus rewards: Earn bonus rewards on certain purchases; the card issuer changes the bonus categories throughout the year.
- Choose your bonus rewards: Earn bonus rewards on certain purchases, but you get to choose the categories (or they'll automatically align with where you spend the most money in a month).
Card issuers often offer multiple rewards credit cards with different rewards structures and types of rewards. You can compare the options to see which might work best based on where you spend money and how you want to redeem rewards.
Additional Rewards Cards Benefits
Many rewards credit cards also offer other benefits that can make using and having the card appealing. These can include:
- An intro bonus: Many rewards cards offer a large intro bonus to new cardholders who meet the requirements, such as spending a minimum amount of money during their first few months with the card
- Intro promotional rates: These give you a low or 0% introductory rate on purchases and/or credit card balance transfers during an introductory period, such as 12 or 18 months.
- Loyalty status: You'll get status in an airline, hotel or retailer's loyalty program, which could offer brand-specific perks, such as room upgrades or free checked bags.
- Travel and purchase insurance and protections: Enjoy extra insurance or protection on your eligible purchases, such as travel insurance, extended warranties or cellphone protection.
- Statement credits: You'll get credits that will offset certain purchases you make, such as an enrollment fee for TSA PreCheck.
Rewards cards with the highest rewards and most benefits usually have an annual fee. Consider whether the extra benefits are worth the cost, or if you'd prefer a rewards card with no annual fee.
Pros of a Rewards Credit Card
The benefits of using a rewards card generally come down to the perks you get with your purchases or from being a cardholder. But you can also take advantage of the general benefits that every type of credit card offers, such as zero liability for unauthorized purchases.
Rewards on Everyday Purchases
Earning rewards on purchases you were going to make anyway is one of the main benefits that rewards credit cards offer. Depending on the rewards card, bonus categories and how you redeem your rewards, you might get 3% or more back on your purchases. Sometimes people get an even higher value if they redeem rewards for luxury hotel stays and first-class plane tickets.
Don't ignore the value of other purchase-related benefits—they might save you a lot of money. For example, some premium rewards cards include primary rental car collision damage waiver coverage when you use the card to pay for your rental. Similar coverage might cost you up to $45 a day if you purchase it from the rental car agency.
Additional Cardholder Benefits
You might be able to get a lot of value from the extra perks you receive just for keeping a rewards card open. The best benefits can include things like monthly or annual statement credits that can cover or offset certain purchases. But brand-specific benefits can also save you money and make your travel or shopping experiences more enjoyable.
Cons of a Rewards Credit Card
Although the benefits can make opening and using a rewards card worth it, consider the potential drawbacks as well.
May Have a High Interest Rate
Rewards cards tend to have a higher annual percentage rate (APR) than non-rewards cards. You can avoid paying interest on your purchases if you pay off your balance in full each month. But carrying a balance will be more expensive, and a low-interest credit card could be a better alternative.
Requires Good Credit
The top rewards cards tend to require good to excellent credit scores and they won't be options for everyone. Rewards cards that only require poor or fair credit are available, but they tend to offer lower rewards rates and fewer benefits. Still, you could use one of these to help build your credit and then apply for a premium card once you're ready.
Could Lead to Overspending
It can be easier to justify a purchase if you're earning rewards, and overspending can lead to revolving a balance and paying interest. If you struggle with compulsive shopping or tend to max out your credit cards, it might be best to avoid rewards cards—or credit cards altogether.
Should You Get a Rewards Credit Card?
You should consider getting a rewards card if:
- You want a credit card for everyday shopping or specific purchases (such as travel).
- You'll get a lot of value out of the cardholder benefits.
- You get a card without an annual fee or know that the benefits will be well worth the cost.
- You will usually pay off the card's balance in full.
If it seems like a rewards card is a good fit, the real question may be which rewards card to get. This comes down to where you'll use the card, how much you'll spend, what types of rewards you want and how much time you want to spend researching the rewards program.
Compare Your Credit Card Offers
Narrowing down the list of potential credit cards to find the best options can be tough, but you can use Experian CreditMatch™ to quickly compare cards' features and fees. Filter the results based on your preferences and choose from credit card offers based on your unique credit profile.