The best ways to choose and use a rewards credit card

We all love to be rewarded for what we do everyday, and the same goes with our credit cards. Earning points or cash back by using a rewards card for purchases you already planned to make is one easy way to reap bonuses. To get the most value out of a credit card rewards card, read on.

1. Consider your most frequent expenses when choosing a rewards card

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Taking a hard look at your spending will help you pick the best card that works for your lifestyle.

First and foremost, you want a rewards card that matches your spending habits. Looking at where, how much, and how often you plan to use a rewards card is the key to finding the right card for you. For example, if you never travel or dine out but you drive a ton, you’re better off with a card that gives bigger rewards on gas than on vacation expenses or restaurant meals—even if the sign-up offer is enticing.

“If there’s a card offering 5% cash back on grocery purchases, but you eat 90% of your meals out, that card probably isn’t right for you and you certainly aren’t going to be maximizing its rewards opportunities,” says Brooklyn Lowery, editorial director of CardRatings.com. “Just because a credit card offers a stellar sign-up bonus or excellent ongoing rewards doesn’t mean that card is your best option.”

Next, take a moment to review your credit card spending habits. How much are you likely to buy on a rewards card each month? “Decide whether you have the spending habits that will allow you to earn top rewards with that card and then think about whether the rewards redemption options align with what you want,” Lowery says.

2. Consider the rewards you’ll get back

All of that said, many cards offer similar earned-points rates for gas, travel, grocery, and/or restaurant purchases, so you should also look at the types of rewards you get for your spending and how those match your lifestyle and goals. “Cash-back or statement credit may be great for you, or you might be working toward travel rewards that allow you to take a free or reduced-cost trip,” Lowery says. “Neither is wrong—you just have to decide what’s important to you.”

With cash-back rewards, you get to add cash to your pocket or use the value to reduce your bill. Travel rewards are richer in every way, but you may have to pay an annual fee (see more below). If you’re not into tracking rewards points and picking up perks, or you simply don’t spend that much on credit each month, you may be better off with a no-fee, cash-back rewards card. If you daydream about your next exotic trip (or you already travel frequently), a travel rewards credit card may be just your thing.

But don’t get sucked in by enticing intro offers or great rewards rates if they don’t ultimately match your goals. “Just because a credit card offers a stellar signup bonus or excellent ongoing rewards doesn’t mean that card is your best option,” Lowery says.

3. Decide if it’s worth getting a card with an annual fee

Person sitting on couch while looking at tablet and holding credit card.

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To get the most out of your annual fee credit card, reap the benefits of those offers being given to you.

Like a lot or extras? With a rewards card that carries an annual fee, you’ll get perks galore. But it’s only worth paying for a card if you know for sure you’ll earn back what you paid and then some. “For instance, I have a Venture X card, which has a $395 annual fee, but between the $300 annual travel credit and the airport lounge access that allows my family of four to eat and drink for free in the airport, I’ve actually saved money if I take just a couple of trips each year, Lowery says. “And that’s before we even talk about the rewards [I’m] earning.”

Ultimately, a fee-carrying rewards card will be more advantageous if you know you’ll spend enough on the card and are able to pay it back every month. You may be able to just out a greater reward.

But you’ll have to do some math to figure it out. For example, consider the Blue Cash Preferred Card from American Express, our reviewer’s best rewards card for groceries. With it, you’ll pay $95 a year and you’ll earn 6% cash back on up to $6,000 spent at US supermarkets annually—double the rate of the no-fee version of the card, Blue Cash Everyday. “But if you max out that 6% supermarket spend—it’s $500 a month—you’ll rake in $360 in cash back,” says Lowery. That alone puts $265 back in your pocket once you subtract the annual fee, as compared to $180 from the Everyday card.

Bottom line: If you aren’t interested in putting the fine-print perks to use and you tend to think of your credit card only in the case of emergencies or reserve for just a few specific purchases each month, a no-annual-fee card is likely a better option for you,” Lowery says. “To truly maximize the value of an annual fee card, you need to be taking advantage of all it has to offer as often as you can.”

4. Apply for rewards credit cards with care

Before you apply for a new card, you must also consider your credit score. If you have excellent credit, you’ll have no trouble signing up for any rewards card you want. But to avoid surprises, check your credit score before applying for a rewards card. With a score of 740 and up, you have very good credit and you should be approved for any card you apply.

But if your credit score is not as robust or you’re new to credit, you may get turned down for a rewards card. In the latter case, scope out our review of the Best First Credit Cards of 2022 before you consider adding a rewards card to your wallet.

5. Use your rewards card as often as you can afford to

Person using the tap feature to purchase something with credit card.

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You’ve earned those rewards so don’t forget to use them!

As long as you have the money to pay off your rewards credit card in full every month, it makes sense to use your rewards card as often as you can.

“I use my credit cards for literally every possible purchase, whether it’s 50 cents or $500,” Lowery says. “I like knowing that all those purchases I have to make anyway are accumulating as some kind of reward that I’ll redeem for a great vacation down the road.”

6. Cash in rewards with regard to their value and your preferences

Choose the reward you want and cash it in when you reach enough miles, points, or dollars. “Some people let rewards accumulate toward a certain goal—like a trip to take on travel rewards—while others set up automatic redemptions for cash back when your rewards hit a certain amount,” Lowery says.

In most cases, you’ll get more purchasing power by using your points to buy something else, like to book travel, than if you go for cash back. But it may be more valuable to you to have certain purchases “erased” as statement credits or to just get a check in the mail periodically than to book a “free” vacation on which you’ll end up spending more money at your destination.

Still, if you want to save up your points for that dream trip, you can maximize the value of your points by going to your destination off-season, says Lowery. More surprisingly, “some of the best travel cards’ rewards value comes not from redeeming points directly through the credit card’s proprietary rewards program, but rather by transferring the rewards to another hotel or airline loyalty program and redeeming through there.”

If you care about getting the absolute biggest bang for your buck, do your homework into the redemption values ​​of your points via the various options.

7. Keep your rewards in perspective

Person smiling while looking at their credit card in hand.

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Try not to overspend while attempting to rack up those rewards

A rewards card can be rewarding as long as you don’t let the promise of rewards lead the way. Only charge what you can pay off each month, pay your bills on time, and enjoy the rewards that accumulate. Steer clear of balances and you won’t be stuck paying interest charges.

“Even if you only redeem rewards for a little bit of cash-back every year, it’s still a little bit of cash back you didn’t have before,” Lowery says. “Plus, responsibly using credit cards looks great on your credit history, so having one could help you get favorable terms on other loans down the road.”

8. Rewards points generalll aren’t worth it if you have to carry a balance

Rewards cards can help people save on their purchases, but all of those savings could cost you more overall if you have to carry a balance. “No amount of rewards, no matter how flashy or eye-popping is worth paying interest,” Lowery says.

If you’re only getting 2% back on your purchases, why pay 18% on the balance? Technically, the rewards would offset the interest rate to 16%, but that’s still not great financial math. If you want to come out ahead, you must pay off your balance in full every month.

That being said, a card with a 0% interest introductory rate could be an excellent choice if you do need to carry a balance—as long as you pay it all off before the introductory period ends.

Need help choosing a rewards card? Check out our Best Travel Credit Cards, Best Credit Cards for Groceries, and Best Credit Cards for Online Shopping.

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Prices were accurate at the time this article was published but may change over time.

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