Earn More Cash Back, Points, and Miles on Every Purchase

Rewards credit cards allow you to earn points, miles, or cash back when you make purchases. You can then redeem your credit card rewards for statement credits, cash deposits, gift cards, travel arrangements, and more.

Many rewards credit cards include valuable benefits and bonus rewards. If you want to earn points, miles, or cash back, consider adding a rewards card to your wallet.

If you're wondering how do credit card rewards work, the basic principle is simple: rewards credit cards earn points, miles, or cash back as you make purchases. You can then redeem your rewards in a variety of ways.

Redemption methods vary by card, but most cards allow you to redeem your rewards for a statement credit or cash back. Another way you can earn rewards with these cards is through welcome bonus offers, also called sign-up bonuses.

Many card issuers promote welcome offers to attract new customers. If you're an eligible new cardholder, you can earn a welcome bonus by meeting the minimum spending threshold within the timeline outlined in the welcome offer.

A rewards credit card is a credit card that earns rewards when you make purchases. Some credit cards earn cash back, while others net points or miles.

You can redeem your rewards in multiple ways, depending on your card and its rewards program. Here are some redemption options that may be available:

• Statement credit

• Cash back

• Gift cards

• Travel

It's crucial to learn how a card earns rewards, the redemption options, fees, and benefits when researching potential rewards credit cards to choose one that aligns with your goals. There are many rewards credit cards, and they differ in how they function.

Pros

We’ve outlined a few notable advantages of rewards credit cards.

Help You Build Credit

Credit cards, including rewards credit cards, can be a fantastic credit-building tool. When you use credit cards for everyday purchases and pay your entire balance off regularly, you'll show creditors that you are financially responsible.

Maintaining a reasonable credit utilization ratio is another habit that can help your credit. This ratio is the percentage of available credit that you're using. So, monitoring your credit usage when using rewards credit cards is wise.

Many experts recommend keeping your credit utilization below 30%. Continued responsible credit card usage helps you build credit and increase your credit score over time.

Earn Rewards

Earnings rewards on purchases can feel like a win, especially as life gets more expensive. With seasonal spending like back-to-school shopping in full swing this month, understanding the benefits of using credit cards for school shopping can help you save.

You can earn rewards quickly using your credit card to pay for most purchases. But it's imperative that you only spend what you can afford.

Welcome Bonus

Many rewards credit cards have attractive welcome bonuses that eligible new cardholders can earn. You can earn a sizable stash of points, miles, or cash back by meeting the minimum spending requirements outlined for these offers. Welcome bonus opportunities are a great way to earn rewards quickly.

Always check to see if you qualify for a welcome offer before you apply for a new card. Some credit card issuers have strict eligibility requirements. You may be ineligible to earn a welcome bonus if you previously earned it for a particular card within the last few years or have had the card before. Not all applicants are eligible for every welcome bonus offer.

Also, make sure you don’t have to overspend to earn the bonus.

Valuable Benefits

Many rewards cards have valuable perks. Some examples include purchase protection, extended warranty coverage, and cell phone protection. There are often many other credit card perks you don't know about included in your cardholder agreement. Some travel credit cards provide travel protections like trip delay insurance, lost luggage reimbursement, and rental car insurance.

The benefits vary from one credit card to another, so review benefit details before applying. Credit card perks can save you money and add value to your life.

Flexible Redemption Options

Many rewards credit cards provide flexible redemption options. You can often redeem your rewards for cash back, a check, or a statement credit. But some cards offer even more flexibility with how you put your rewards to use.

For example, some credit card rewards programs let you redeem your points or miles for bookings through a travel portal or by transferring your rewards to select airline or hotel partners. Having flexibility in how you redeem your rewards gives you more control.

Cons

We've outlined a few rewards credit card disadvantages you should know.

High Interest Rates

Many of the best rewards credit cards have high interest rates. If you want to earn rewards, only use your card for purchases you can pay off immediately. If you carry a balance on your rewards card, your credit card issuer will charge you interest fees.

These fees can add up and may lead to credit card debt. Before getting a rewards card, review all costs – including the annual percentage rate (APR), so you know what to expect if you carry a balance on your card.

The best strategy is to avoid credit card interest fees. You can do this by paying your card's statement balance monthly.

Annual Fees

Some premium rewards credit cards that earn rewards at higher rates and provide more plentiful benefits have an annual fee.

Be sure to verify whether a card has an annual fee and consider whether the yearly fee fits your budget before applying for a new card. It’s worth noting that there are rewards cards without annual fees.

Foreign Transaction Fees

Some rewards credit cards charge foreign transaction fees on purchases made in a foreign currency. Such fees are typically around 3% per transaction. Verify whether a rewards card has foreign transaction fees before traveling abroad.

Many of the best travel rewards cards have no foreign transaction fees, so keep this in mind if you like to travel internationally.

Credit Score Requirements

Many popular rewards credit cards are intended for people with good to excellent credit. If your credit score isn't ideal, take some time to improve your credit score before applying for a rewards credit card.

While there are no guarantees, having a higher credit score could increase your odds of approval for a new rewards credit card.

Rewards credit cards earn points, miles, or cash back as you make purchases. You can then redeem your rewards in a variety of ways. Redemption methods vary by card, but most cards allow you to redeem your rewards for a statement credit or cash back.

Another way you can earn rewards with these cards is through welcome bonus offers, also called sign-up bonuses. Many card issuers promote welcome offers to attract new customers. If you're an eligible new cardholder, you can earn a welcome bonus by meeting the minimum spending threshold within the timeline outlined in the welcome offer.

Here’s an example: A rewards credit card may require eligible new cardholders to spend $4,000 within three months to earn a $750 welcome bonus.

A welcome bonus can be a great way to boost your rewards quickly. But using a rewards card for everyday purchases is an excellent strategy to earn credit card rewards regularly and turn spending into cash back or other valuable rewards.

There are a variety of rewards credit cards and how they earn rewards differ. Below is a breakdown of a few types of rewards credit cards you can add to your wallet.

Cash Back

Cash back cards earn cash rewards on purchases. You can often redeem your rewards for a statement credit, cash out your earnings to a checking or savings account, or get a check mailed to you.

Some cash back cards earn fixed or flat-rate rewards for every purchase. For example, you might earn 2% cash back every time you swipe your card. This structure makes for a simplified approach to using a credit card to earn rewards.

Other cash back cards earn rewards at varying rates, depending on the purchase. Cards like this provide bonus rewards in select purchase categories. For example, you might earn 3% cash back on travel and dining purchases but only 1.5% on purchases outside those categories.

Many people like the simplicity of cash back credit cards because they can easily redeem their rewards with little effort. If you value cash rewards, a cash back card may be your ideal rewards card.

Points

Some rewards cards earn points on purchases. The number of points you earn varies on the card. Some cards earn points at a fixed rate regardless of the purchase category. For example, a card may offer 2X points on every purchase.

Others earn bonus rewards at an elevated rate for select purchase categories, like travel or dining. For example, you may earn 3X points when using your card for dining and online grocery purchases. Understanding the reward structure of a particular card is essential.

Many rewards cards that earn points provide multiple redemption options. You can redeem your rewards for travel purchases, get a statement credit, or cash in points for gift cards. Verify the value of each redemption so you can choose a method that maximizes your rewards.

Miles

Some travel rewards credit cards earn miles. Similarly to cards that earn cash back or points, how you earn miles can differ from card to card. Review the rewards structure to know whether you'll earn miles at a fixed rate or if some purchases qualify for an elevated reward rate.

You may be able to redeem your miles for cash back or a statement credit to your credit card account. Alternatively, you may be able to redeem them for flights, hotels, or car rentals through a designated online travel portal.

Some premium rewards cards allow travelers to redeem their miles for flights by transferring their rewards to participating airline partners. This strategy is favored among frequent travelers because it can be a great way to maximize the value of their rewards.

Related: Check out our top picks for travel rewards credit cards.

If you're familiar with using credit cards, you can benefit from adding a rewards card to your wallet. You can earn points, miles, or cash back with minimal effort. But it's crucial to consider your financial situation before getting a new credit card.

Rewards cards are best for people who have good spending habits. You'll want to pay off your entire statement balance regularly to avoid expensive credit card interest charges and debt.

You should also consider your budget. Some credit cards with the best rewards have annual fees. But the good news is there are no annual fee credit cards that earn rewards.

Here are a few key features for a rewards credit card.

Bonus Rewards in Select Purchase Categories

Some rewards cards offer bonus rewards in select spending categories and earn rewards on everyday purchases. You can maximize the rewards by choosing a card with bonus rewards that align with your typical spending.

For example, a card might offer 3% cash back on travel and dining purchases and 1% cash back on other purchases. You could benefit from this rewards card if you make travel and dining purchases often.

Valuable Perks

A good rewards credit card will have valuable benefits. If the card has an annual fee, the benefits should be worth the yearly fee. As you explore card options, review the included benefits.

Here are some credit card perks that may be available:

• Purchase protection

• Extended warranty coverage

• Cell phone protection coverage

• Travel protections

Statement Credits

Some rewards cards offer statement credits. If you make eligible purchases with your card, you can earn monthly or yearly statement credits to your account. This feature could help you save money.

Some of the best travel rewards credit cards offer travel credits that help frequent travelers save money on travel expenses.

Multiple Redemption Options

Look for a rewards card that provides multiple ways to redeem your rewards. This feature gives you more flexibility. Many of the best credit cards with rewards offer multiple ways to "cash out" your credit card points or miles.

It's important to understand the value of your points, miles, or cash back because some redemption options may be more advantageous if you want maximum value from your rewards.

Welcome Bonuses

Many of the best rewards credit cards have generous welcome bonus offers. You can earn a sizable stash of points, miles, or cash back by meeting the minimum spending requirement within a set timeframe.

If you're eligible to earn the welcome bonus and can afford to meet the spending requirements, this offer can be a great way to earn credit card rewards quickly.

There are many rewards credit cards, but not every one will align with your goals. Here are some considerations to make to help you choose your ideal card.

Consider Your Typical Spending Habits

Choose a rewards credit card that aligns with your typical spending patterns. Learning to align cards with your spending habits is the single most important step to maximizing your earnings. By doing this, you can ensure you're getting the most back from the purchases you already make.

Expert tip: “People should be looking at credit card rewards as a way to offset rising costs. They can benefit from owning and using rewards cards that earn large perks on their main spending categories, such as cash back, points, or miles on spending they are already doing.” John Garner, credit card rewards expert and CEO of Odynn

Have a Plan for How to Redeem Your Rewards

Not all rewards credit cards offer the same redemption options. If you have a preferred way of using rewards, look for a card that aligns with your preferences.

As an example, some travelers prefer using a points or miles-earning card so they can redeem their rewards through a travel portal or by booking travel through select travel partners. Some cash back cards may not offer this option. Determine your redemption goals and then explore rewards card options that align with them.

Choose a Card With Perks You’ll Use

Many of the best rewards cards provide useful card perks. But not every benefit offered will appeal to you or add value to your life. Review ancillary card benefits when comparing rewards credit cards so you can choose a card with perks you’ll use. This step is especially important if you’re considering a rewards credit card with an annual fee.

Garner suggests asking yourself whether the card's perks are ones you'll use and whether the benefits outweigh the cost of the annual fee.

“Taking that a step further, which card provides the largest value to you over the cost of the annual fee?” Garner says. “This can help you choose your ideal card.”

Consider Your Approval Odds

Many of the best credit cards for rewards are intended for people with good to excellent credit. Before choosing a card, consider your credit history and credit score. You should also research recommended credit score ranges for rewards cards to know which cards will be ideal.

Some credit card issuers publish a recommended sore range or suggested credit type (fair, good, excellent) on their website. If you can't find this information, you can learn more about suggested credit scores by reading credit card reviews online or reading experiences shared by other cardholders at communities like myFICO® Forums.

Doing this research before you apply for a particular card reduces your odds of denial. But keep in mind that there are no guarantees of approval. In addition to your credit, other factors, like your income and debt-to-income ratio, are considered during the application process.

Here are some suggestions to help you get the most out of using rewards credit cards. Following a few expert tips for using credit card rewards can help you maximize their value and avoid common pitfalls:

Pay Attention to Fees (and Take Steps to Avoid Them!)

Review the fees associated with your rewards card. You can make strategic moves to avoid some. One costly but avoidable fee is credit card interest. You can avoid interest by paying your credit card's statement balance off monthly.

You can also avoid foreign transaction fees. Many of the best travel rewards cards highlighted above don’t charge them as an added benefit.

Be Strategic With Your Spending

Consider the best card to use when purchasing – especially if you have multiple rewards cards in your wallet. You can maximize the rewards by being selective about which card you swipe at checkout.

If you’re dining out and have a rewards credit card that earns 3X points on dining purchases, it wouldn’t be advantageous to use a flat-rate cash back card that earns 1.5% cash back. You’d want to use the card that earns bonus rewards on dining instead.

Explore Redemption Options and Understand Their Values

Research redemption options to get the most benefit from your credit card rewards. You may be able to cash out your points or miles for a statement credit, but that may not offer the most value.

If you like to travel and have a travel rewards card, check whether you can redeem your points or miles for hotel stays or flights.

Don’t Overspend to Earn a Welcome Bonus

Welcome bonuses can make it easier to earn rewards faster. But review the offer details for a sign-up bonus to ensure you can afford the minimum spending requirements.

Expert tip: “Before you chase a big welcome bonus, make sure you can meet the requirements with your regular spending. If your planned spending isn’t enough to hit the threshold, choose a card with a smaller welcome offer that you can realistically hit with your regular expenses.” — CFP and personal finance writer Hartill

Avoid Hoarding Rewards

If you're saving up your rewards for a specific redemption, that's great. But be mindful that you don't get into the habit of hoarding your points because you're indecisive or life is too busy. If you hold on to your points, they can lose value.

Credit card rewards programs can change anytime, and the points or miles required for some redemptions may become more expensive over time. It's better to use your rewards as soon as you can to maximize their value.

If a rewards credit card isn't the right fit for you, explore other options. Here are a few alternatives to consider.

Secured Cards

You might not qualify for one of the best rewards credit cards, especially if you have limited credit. A secured credit card can be an alternative option for those with limited or no credit.

Most rewards credit cards are unsecured, meaning a security deposit isn't required to open an account. However, secured cards require the account holder to make a refundable security deposit as collateral.

Secured cards are a great option if you need to establish credit. However, many secured cards have minimal card perks and lack rewards.

0% APR Credit Cards

If you need help financing a large purchase or paying down credit card debt, consider applying for a 0% APR credit card. These credit cards offer zero interest throughout an introductory promotional period – typically 12 to 18 months.

Some zero-interest credit cards have an introductory 0% APR for purchases, while other 0% APR offers apply to balance transfers. However, some credit card zero-interest introductory offers apply to both.

You could save money on interest charges with this kind of card. Having more time to chip away at your balance could make financing a large purchase or eliminating credit card debt more manageable. Just ensure you pay the entire balance off before the promotional period ends. Otherwise, you'll be charged interest fees.

Related: Review our top picks for the best 0% APR credit cards.

When evaluating the best credit cards for rewards, we examined several factors. They include rates and fees, such as annual fees, purchase APRs, promotional APRs, balance transfer fees, and foreign transaction fees.

We also analyzed card features, including benefits, sign-up bonuses, how each card earns rewards, redemption methods, and bonus rewards opportunities. We also considered security, user experience, and customer service for each credit card issuer.

What Is the Best Rewards Credit Card?

There are many top-rated rewards credit cards, but not every card is the right fit for you. The best rewards credit card has benefits you will get value from, earns rewards on your typical purchases, and provides redemption choices that align with your goals.

Which Is the Best Credit Card to Accumulate Points?

The best credit card to accumulate points is one that earns rewards for your regular spending. Consider cards with bonus rewards opportunities that align with your top spending categories to maximize earnings. If your spending varies across multiple purchase categories, consider having more than one rewards card in your wallet.

How Many Credit Cards Should I Have for Rewards?

Deciding how many credit cards to have in your wallet is a personal choice. Some people use multiple credit cards to maximize their rewards potential, while others feel comfortable using only one. You should only apply for a credit card if it fits your financial goals and budget, and you should only spend within your means. For more guidance, you can review some general financial goals tips to help frame your credit card strategy.

Wells Fargo

Disclosure: This content is not provided by the issuer. Any opinions expressed are those of BestMoney alone, and have not been reviewed, approved or otherwise endorsed by the issuer.

Bank of America

Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.