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Do you want to get rewarded for spending money? More and more people are switching to credit cards that offer free travel points, cash back, bonuses, and other amazing perks. Sifting through all of the options seems like an impossible task and makes it even more impossible to choose. So how do you pick one that's right for you?
Deciding on what rewards card to get is entirely dependent on your personal life and spending habits. Some people get sucked into the thought of free rewards, and they don't consider what the rewards really are. Instead, the rewards they earn are often left sitting on the table. If you have no time or desire to travel, then you wouldn't want to get a rewards card that only offered travel perks. You would be surprised how many people do this thinking that the free rewards will give them enough incentive to go on vacation, but they never go.
WHAT KIND OF REWARDS ARE YOU LOOKING FOR?
When deciding on what kind of rewards you want in a credit card, you must first decide if you want a card that has benefits or rewards. With an actual rewards card, you earn points and miles that you earn through regular spending and sign-up bonuses that you can redeem in the future. With a card that offers benefits, you get perks just for having the card. These perks include things like free checked bags, elite statuses, and free credit score disclosure. Thepointsguy.com puts credit cards into four different categories when making a decision on which reward card to choose.
- FIXED-VALUE POINTS: When a credit card offers you fixed-value points, this means that the value of the points you earn from spending money will never change. Hence, the word fixed. You can redeem fixed-valued points for travel, merchandise, or cash back at the fixed-rate you were promised when you signed up for the card. Usually, the fixed-value isn't much, 1 point per dollar spent is common. For example, the Amex Everyday Credit Card from American Express is currently offering 10,000 bonus points if you spend $1,000 on the card in the first three months of cardmembership. You earn 2x for purchases at U.S. supermarkets (up to $6,000 on purchases per year). After that, all purchases will earn 1 point per dollar spent. Some other great examples of fixed-value credit cards are Capital One Venture Rewards Credit Card and Chase Freedom.
- SPECIFIC TO A TRAVEL PROVIDER: A credit card that offers rewards for a specific travel provider allows you to earn points, miles, or benefits with a single airline or hotel chain. These cards are suited for people who prefer one airline over another, only like staying at one hotel chain, etc. One example is the Gold Delta SkyMiles Credit Card. You earn miles from making everyday purchases on your card for things like gas, groceries, and eating out. There is no limit to how much you earn, and the card offers some additional benefits such as first checked bag free, priority boarding, and no foreign transaction fees.
- SPECIFIC TO A RETAIL STORE: You probably have been offered one of these reward credit cards at least once in the last three months if you shop at your favorite retail stores. At checkout, have you ever been asked, ” If you open a credit card today, you can save 15% off your purchase. Would you like to open one?” With these type of credit cards, you earn rewards for shopping at one specific retail store. Cashiers are constantly trying to have you sign up for these cards at checkout. Examples include Macy's American Express, Target REDcard, and the JCPenny Credit Card.
- TRANSFERABLE POINTS PROGRAM: If you don't want to be stuck with rewards specific to only one travel provider, these type of credit cards earn you points that can be transferred to different travel partners. This gives you the option to decide which airline or hotel is best for you. One example is the American Express Platinum Card
All of these factors are important factors when deciding on what kind of rewards card you want to get. If you are looking for cash back, an airline or hotel card won't be very useful. The same goes with travel cards. If you never travel outside of the U.S., you might not need a card that offers no foreign transaction fees.
HOW MUCH DO YOU SPEND AND WHERE DO YOU SPEND IT?
If you are wanting to get rewarded for spending money, another important factor to consider is how much you typically spend on credit cards each month or year. If you are like me, and never use credit cards, finding a rewards credit card doesn't make much sense. Personally, the value of rewards does not outweigh my urge to spend money I don't have. I avoid credit cards altogether because I know myself all too well. If you do charge expenses to a credit card, it's also important to look at where you are spending your money.
Some rewards cards out there offer bonuses for spending money only in certain categories such as gas or dining out. If you travel a lot of work, you could benefit from a card that offers bonuses for travel purchases. The most important thing to remember when it comes to your spending is accepting that fact that earning rewards is NO excuse to spend more than you can afford to pay off every month. The finance charges alone will quickly outweigh the perks of the card.
CAN YOU GET APPROVED?
Before applying for a new rewards card, it's important to do your homework first. You will never know for sure if you can get approved for a credit card, but you can make an educated guess. The first step is finding out your credit score. Understanding your credit history and what impacts your credit score is another huge step in understanding where you stand when applying for a rewards credit card. It's also important to keep things in perspective. If you are only 21 and have little credit history, the chances of you getting approved for a Platinum card like the American Express Platinum card is slim. There are, however, some rewards cards that are within reach if you lack a well-established credit history. If you have just “average credit” the Capital One QuicksilverOne Cash Rewards Credit Card is a great choice. If you are a student and are wanting to build credit, a great option is the Journey Student Credit Card.
By law, you are entitled to order (every 12 months), a free copy of your credit report from each major credit reporting agency (Equifax, Experian, and TransUnion). You can request your free copy by going to AnnualCreditReport.com. After receiving your free credit report, I recommend going through it to make sure all information is accurate. You can use free tools such as CreditKarma.com to see an estimate of your credit score as well. Once your credit report is correct and you have an estimate of your credit score from CreditKarma, you can use another free tool to see what score you will need be to get approved for the card you want. I got this resource from thepointsguy.com, and it's an excellent tool to do your research.
Another site to check out is creditboards.com, specifically the Credit Pulls section. Simply enter the card issuer (e.g., Chase) or a specific product you’re interested in (e.g., Chase Sapphire Preferred), and select the credit bureau from which you have your score. (I’d recommend leaving the “Score Needed” and “State” boxes blank/unchecked to get a larger number of data points.) The results will give you an idea of the score needed for approval. The image below shows the results of my search for “Chase Sapphire Preferred” using the TransUnion option.
Again, remember that the score is just one component of the approval decision. Note that an applicant with a 781 score was denied due to too many new accounts, whereas another applicant with a score of 629 was eventually approved.
IMPORTANT THINGS TO REMEMBER
Before applying for a credit card, there are a few important things to remember.
Make sure to read the fine print. I will say it again. MAKE SURE TO READ THE FINE PRINT. It easy to be distracted by all of the sweet incentives a reward card may offer, so it's important to fully understand all the terms and conditions associated with the card before applying. Things to look for are the interest rate on purchases, cash advances, and balance transfers. Is there an annual fee? Are there other fees such as foreign transactions fees, late fees, over limit fees, or prepayment fees? Is there a cap on how many rewards you can earn? Are there blackout dates?
Do you tend to carry a balance every month? If you do, then maybe a rewards card isn't right for you. You might be better off getting a simpler credit card offered by your local credit union that offers a low fixed interest rate, and fewer or no fees.
Being rewarded for spending seems nice, but it's only nice if you can make it work to your advantage.
Do you have a favorite rewards card? Share them with me in the comments below.
Thank you so much for this article! It is very helpful 🙂
You are so welcome Charlsey!