We will guide you through some of the basics of rewards credit cards.
At their most basic, rewards credit cards offer discounts. This can be quite simple, for example, cash back on all purchases made during the month, for example at a 1% rate. If you use your credit card often, but keep up on your payments, this can in fact make a credit card a little cheaper than using cash. Sometimes you only get cash back after spending over a certain amount, or you only get a smaller percentage on anything under that amount.
Look into the specifics of the card you are applying for. Other rewards include discounts in certain areas. For example, a student rewards credit card could offer discounts when used in the college bookshop, or a business rewards credit card could reward you in one particular area, e.g. office supplies or transport costs. Generally, you will pick this category when signing up for a business rewards credit card. Yet another form of the rewards credit card is when a company offers air miles for using the card, i.e. for every purchase on the card you save money on a flight.
Some non-credit companies offer their own rewards credit cards. While these can be good offers, be careful you’re not spending more in annual fees than you are receiving back in rewards. Equally, it is pointless saving money in rewards points etc. unless you spend it as you would normal money, and not on pointless and unnecessary items you would never otherwise buy. Make sure you don’t go overboard either – getting a credit card for every item you regularly buy is not a good idea as you’ll pay annual fees on all of them whether or not you use them. Consider using only one rewards card most of the time in order to maximise your rewards with that company – just ensure you pick the company you would otherwise be spending the most on to get the best possible value.
One of the major downsides of rewards credit cards is that the ones with the best rewards generally require a good credit rating. In other words, before you get too excited on seeing a card with low APR, 2% cash back and an introductory rate of 0%, check that you qualify for it. You will have to pass income, means and credit tests to qualify for the rewards credit card. While this is not strictly a downside to having a rewards credit card, just bear in mind that only those with excellent ratings can afford the best ones. If you qualify, well and good; if not, look into other rewards credit cards.
You should also bear in mind that a rewards credit card may not be the right choice for you if you frequently have a balance left over at the end of the month. Ultimately, credit card companies must make their money back somewhere, and if a deal looks too good to be true, it probably is. Check that the rewards you are offered on the rewards credit card are not all immediately balanced out by a higher APR.
There are plenty of opportunities out there to save large amounts of money with rewards credit cards. Be careful you are not being ripped off in other areas and that you qualify for the card to avoid disappointment. Once you approach rewards credit cards with a critical eye and do some of your own calculations, you could be very pleased about your new card.