How to Choose the Perfect Rewards Card for You

How to Choose the Perfect Rewards Card for You

If you’re confident that you’ll use your credit card responsibly, then a rewards credit card is a great way to earn a passive income. Rewards on these cards take many different forms: there’s cash back, points that can be used for travel, and other benefits which vary from card to card. Depending on which one you choose, purchases made on these cards can go a long way towards funding travel or making everyday expenses a little less burdensome.

When to Consider a Rewards Card

Before applying for a rewards card, it’s important to assess your personal finances and determine whether a rewards card is a good idea. You should only apply for a rewards card if your credit score is above average or better (any score over 700 will do), since most rewards cards require strong credit. Also, if you plan on carrying a balance every month, it’s worth looking into other options, like a Low-APR card, since rewards cards tend to carry higher interest rates which could offset any rewards you earn.

If you have a good credit score and intend to pay off your monthly balance, then applying for a rewards card is a solid idea. Before picking which type to apply for, you should take a close look at your spending habits. Here’s a quick, easy guide to each type of card, and the sorts of spending patterns they fit.

Cash-Back Cards with Specific Bonuses

These cards offer cash-back on specific types of purchases. Some offer unchanging rates for one or two types of purchases, like American Express’ Blue Cash Preferred Card, which provides 6% cash back on groceries and 3% cash-back on gas. Others have cash back rewards which rotate between categories on a quarterly basis. It’s a good idea to get one of these cards if you tend to spend a high proportion of your money in one area. There’s a card for almost any imaginable category: there are cards that offer specific bonuses for eating out, travel, entertainment, Amazon and Costco, to name just a few.

Flat-Rate Cash-Back Cards

These cards offer a lower-percentage cash-back rate (typically between 1% and 2%), but give cash back for all purchases, no matter the category. These cards are best for the person who tends to spend money in a variety of areas, and who might not feel like keeping track of categories on bonus cards.

General Travel Rewards Cards

If you travel frequently and you’re not loyal to a particular airline or hotel chain, then a general travel rewards card is a great choice. Instead of giving you cash back, these cards provide travel “points” for your everyday purchases. These points can later be redeemed to pay for flights and hotels at most major brands. Most general travel rewards cards also have spending portals, where you can use points to pay for travel at discounted rates.

Co-Branded Travel Rewards Cards

These cards are for those who travel frequently and tend to use one particular airline or hotel chain. The points on these cards add up faster than they would on general travel cards, but they can only be used for a specific brand – The Southwest Rapid Rewards Card, for instance, offers 50,000 points (equivalent to $500) for all Southwest flights after you spend $2,000 in the first three months.

The Fine Print

Once you’ve decided which type of card you want, it’s still possible that a card which suits your needs is not worth getting. Many cards carry annual fees which usually fall between $50 and $400–if you don’t think you’ll use your card much, then there’s a good chance you won’t collect enough rewards to offset that fee. Many rewards cards also charge fees for overseas purchases, and others (like American Express) are only accepted at a limited number of retailers. Make sure you consider these factors before picking which rewards card is right for you.