What is a rewards credit card and how does it work?
Editor's Note
Rewards credit cards allow people to earn rewards when they make purchases with their cards. By using a rewards card for your everyday spending, rewards can quickly add up, helping you get closer to your next vacation or big purchase.
Here, we explain what rewards cards are and how they work.
Related: The best rewards credit cards for each bonus category
What is a rewards credit card?
A rewards credit card "rewards" you with cash back, points or miles when you buy things with your card.
You can then redeem the rewards you've earned for everything from statement credits to travel to gift cards, merchandise and more. Most rewards credit cards fall into two main categories: travel credit cards and cash-back credit cards.
Related: How (and why) you should earn transferable credit card points
How to choose a rewards credit card
Before choosing a rewards credit card, it helps to analyze your spending habits. What do you spend the majority of your money on? This can help you determine what type of rewards card is best for you. For example, do you prefer to earn cash back or travel rewards?
Cash back is straightforward and offers more flexibility, as it can be used for things other than travel. Travel rewards can vary.
Flexible currencies like American Express Membership Rewards points and Chase Ultimate Rewards points can be redeemed for travel through each issuer's travel portals; these points can also be transferred to travel partners.
Cards that earn travel points often let you convert your points to cash back. However, we don't recommend this as the redemption rates for this method are usually poor. For example, Amex Membership Rewards points can be converted into cash back, but at a reduced rate of as little as 0.6 cents per point.
When redeeming, I recommend that you aim for a minimum of 2 cents per point.
Other travel credit cards include cobranded airline and hotel cards. These earn points or miles with a specific airline or hotel. For example, United Airlines credit cards earn United MileagePlus miles, and Hilton cards earn Hilton Honors points.
Lastly, many reward credit cards charge an annual fee. These fees can vary greatly depending on the card, but cards with higher annual fees typically offer more perks and benefits. Always measure the potential rewards and benefits against the annual fee to justify the cost.
Related: Cash back vs. travel rewards: How to choose a credit card
What credit score do I need for a rewards card?
Most travel rewards credit cards require you to have a good credit score of at least 670. It all depends on the card you are applying for. Some premium rewards credit cards may require excellent credit to be approved. There have been cases where people with lower or higher scores got approved or rejected; it depends on your specific scenario.
If your credit card application has been declined and you believe it should have been approved, the card issuer may have a reconsideration line; you can call this line and ask them to reevaluate your application. It is also important to note that some cards have application restrictions that could prevent you from getting approved.
Related: What is a good credit score?
How to maximize card rewards
One way to maximize credit card rewards is to use multiple rewards cards to take advantage of bonus earnings in multiple spending categories.
For example, you could combine the American Express® Gold Card and the Capital One Venture Rewards Credit Card. Use the Amex Gold for dining at restaurants worldwide as it earns 4 points per dollar spent (on up to $50,000 in purchases per calendar year, then 1 point per dollar).
You should also use the card for grocery shopping at U.S. supermarkets as it earns 4 points per dollar, up to $25,000 of spending per calendar year, then 1 point per dollar.
The Capital One Venture Rewards earns at least 2 miles per dollar spent across the board, so you could use this for the remainder of your spending.
There are many ways to combine two or even three rewards credit cards to maximize rewards.
Related: Better together: The ultimate guide to the best credit card combinations
Bottom line
A rewards credit card allows you to earn rewards on almost all of your spending. Remember that the right card should fit your lifestyle, and if there is an annual fee, make sure it's justified. When used properly, the rewards you earn from credit cards can be a great way to kickstart your next trip or save you money.
Related: Best rewards cards
TPG featured card
at Capital One's secure site
Terms & restrictions apply. See rates & fees.
| 5X miles | Earn 5X miles on hotels, vacation rentals and rental cars booked through Capital One Travel |
| 2X miles | Earn unlimited 2X miles on every purchase, every day |
Pros
- Stellar welcome offer of 75,000 miles after spending $4,000 on purchases in the first three months from account opening. Plus, a $250 Capital One Travel credit to use in your first cardholder year upon account opening.
- You'll earn 2 miles per dollar on every purchase, which means you won't have to worry about memorizing bonus categories
- Rewards are versatile and can be redeemed for a statement credit or transferred to Capital One’s transfer partners
Cons
- Highest bonus-earning categories only on travel booked via Capital One Travel
- LIMITED-TIME OFFER: Enjoy $250 to use on Capital One Travel in your first cardholder year, plus earn 75,000 bonus miles once you spend $4,000 on purchases within the first 3 months from account opening - that’s equal to $1,000 in travel
- Earn unlimited 2X miles on every purchase, every day
- Earn 5X miles on hotels, vacation rentals and rental cars booked through Capital One Travel
- Miles won't expire for the life of the account and there's no limit to how many you can earn
- Receive up to a $120 credit for Global Entry or TSA PreCheck®
- Use your miles to get reimbursed for any travel purchase—or redeem by booking a trip through Capital One Travel
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- Transfer your miles to your choice of 15+ travel loyalty programs
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