Credit cards can be a convenient way to pay for purchases while you build credit. Rewards credit cards can also let you earn miles, cash back or points on eligible purchases. Rewards cards can be harder to qualify for but may provide great perks. If a rewards credit card has an annual fee, consider whether the benefits are worth it for you. That said, rewards credit cards are often worth it if you don’t carry a balance and use your credit card responsibly.
What is a rewards credit card?
A rewards credit card typically lets you earn miles, points or cash back on eligible purchases.
- Cash back: A cash back credit card allows you to earn points on a percentage of your purchases , and redeem your points as cash back in the form of a statement credit, which you can then use on future purchases. You may be able to get cash back in the form of a check or direct deposit. Depending on your cash back credit card, you may earn a flat rate, more cash back in some categories than others, or you may only earn cash back in certain categories. Your card may also have limits on how much cash back you can earn.
- Points: Points-based credit cards enable you to earn points on your spending that you can redeem for rewards. Like cash back credit cards, you might earn a flat rate across all purchases, more in specific categories or only in some categories, and there may be limits on how much you can earn. For example, a card may allow you to earn 1x points across all purchases, 2x points on gas and 3x points on groceries.
- Miles: Travel rewards credit cards often let you earn miles when you make eligible purchases. Like points and cash back credit cards, some cards may let you earn miles on every dollar you spend. Others may offer more miles when you pay for groceries, dining or travel, or only in certain categories. Travel rewards credit cards may be co-branded with an airline, hotel or other partner.
Redemption options can vary depending on the rewards program, card issuer and credit card. Many rewards credit cards let you redeem your earnings in a variety of categories, such as travel, entertainment, gift cards or cash back.
Advantages of using rewards credit cards
Rewards credit cards can offer many benefits worth taking advantage of. Here are a few to consider:
- Earning on everyday purchases: Rewards credit cards let you earn on everyday expenses like groceries, dining and gas. Over time, this can add up.
- Introductory offers: Some rewards credit cards have introductory offers if you meet certain spending criteria within the first few months of opening your account. For instance, you may receive 50,000 points if you spend $4,000 within the first 3 months of opening the card.
- Additional cardholder benefits: Rewards credit cards may offer perks like discounts and deals, credits for certain purchases and access to portals like Citi Travel℠.
Potential drawbacks of rewards credit cards
Rewards credit cards may have some potential disadvantages worth bearing in mind.
- Carrying a balance: Carrying a balance on your credit card can mean incurring interest. Interest charges can add up quickly and cancel out any benefits.
- Annual fees: Some rewards credit cards carry annual fees. If you’re thinking of a card with an annual fee, consider whether the benefits are worth it for you.
- Complexity in managing rewards: Some rewards credit cards have straightforward redemption rates, but others might be complex and require more time to navigate.
Remember to compare different rewards credit cards to find one that suits your needs. For example, if you’re looking for a low-effort card, you may want to find one with no annual fee and easy-to-track rewards programs.
When are rewards credit cards worth it?
Rewards credit cards are usually worth it if you qualify and use them responsibly. They let you earn points, miles or cash back on purchases you'd make anyway. However, before you apply for a credit card, it's best to compare different cards and identify one where the benefits outweigh any potential costs. Remember that carrying a balance may negate the benefits of a rewards credit card.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
