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Rewards Credit Card


A Rewards credit card is a card that rewards its users every time they swipe it to purchase specified goods and services. The credit card issuer ties up with many merchants and extracts discounts from them. Merchants oblige because credit card issuers have millions of customers and each swipe of a rewards credit card increases sales, and so merchants don’t mind giving away discounts. Credit card issuers keep existing customers happy, attract new customers, and earn finance charges when their customers swipe their credit cards more often. The customer too is happy because he can redeem his rewards for valuable goods or cash. A rewards credit card therefore spells a win-win situation for all involved.

The credit card issuer uses a points system to keep an account of credit card usage on specified services and the rewards points accumulated. Generally, the reward value is set at 1% of purchases. If you spend $100, you get rewards worth $1. Reward points are set at 1 point per every dollar spent. Some credit card issuers reward users with more than 1 reward point per dollar, depending on the nature of their tie-up with merchants.

A credit card that gives cash back to its user also is a rewards card and is generally referred to as a cash rewards credit card. It allows users to convert their reward points into cash. This cash back is typically credited in the rewards credit card statement.

Rewards credit card benefits expire if they are not redeemed within the time specified by the card issuer.

Rewards credit cards have higher APRs and are meant for people who pay up their entire outstanding balance, on time, stay within their credit limits, and take complete advantage of their spends. The cardholder must understand that his rewards typically work out to 1-2% of spends while interest on revolving outstanding balances can range between 1.5% and 2.2% depending on creditworthiness. Therefore, rewards credit cards are not for those who do not pay in full, on time or who miss payments.

How to choose a rewards credit card?

1. You should work with a top rewards credit card. Capital One rewards, Citibank rewards, Discover rewards, Chase rewards cards are issued by well-networked, global and reputed financial institutions. These financial institutions offer the best discounts and low APRs and every credit expert recommends users to stick with the best.

2. People who want discounts on all purchases can opt for a cash rewards credit card. Such users get a cash back (read: discount) on all purchases. Many folks even enjoy such discounts on making payments for essential services to utility companies. Users who use their car to commute to work can choose a gas rewards card; people who shop for groceries can opt for supermarket rewards credit cards; and so on.

3. A rewards card must help the user and so, every card user must choose a credit card that reconciles with his lifestyle. For example, frequent travellers can choose a rewards credit card that accumulates flyer miles with every purchase; people burdened by debt can choose a balance-transfer-plus-rewards credit card featuring a low APR, and so on.

This is how a rewards credit card works and how you should go about choosing one. A wrong rewards card can be worthless. If users are reckless with their spending or repayments, then a rewards credit card can quickly become an albatross around their neck. However, choosing the right rewards credit card can make life very pleasurable and profitable.

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