Chances are you’re confused with all of the different types of rewards credit cards out there today, especially if you’re looking for your first card. No worries. These cards can be broken down into a few different categories.
At least one of these types will fit your lifestyle perfectly. Let’s find out which type is right for you.
Flat Rate Cash-Back Cards
Flat rate cash-back credit cards are by far the easiest to use. This type of card is for you if you just want a decent rate of cash back and don’t want the hassle of remembering which card to use at each store.
While almost all cards offer 1% cash back on every purchase, there are a few newer cards that offer anywhere from 1.5% to 2% on every single purchase you make.
Redemption options are normally easier with flat rate cash-back cards. Once you accumulate enough points or cash back, simply ask for a statement credit, a check or a direct deposit of your rewards. How exactly you redeem your rewards depends on the card you get, but most are fairly straightforward.
Bonus Category Credit Cards
Bonus category credit cards are the next step up in terms of complexity. Most of these will have the same redemption options as a flat rate cash-back credit card, but the rewards earning structure differs slightly.
These cards offer bonus cash-back rates in select categories rather than a flat rate on all of your purchases. You could earn 1% cash back on all purchases, but with a bonus category credit card you may also earn 2% on dining and 5% on groceries. Some cards will limit the bonus cash back in certain categories.
These cards take a bit more skill to pick because you’ll need to find one that matches your spending habits and maximizes your rewards potential.
Rotating Category Cash Back Cards
Rotating category cash-back credit cards make bonus category credit cards look simple. They often have the same redemption structure as flat rate and bonus category cards, but rather than having fixed bonus categories, the bonus categories rotate.
For example, you may earn 1% cash back on all purchases, but in the first three months of the year you can earn 5% cash back on gas and department store purchases. However, in the second quarter the 5% cash back may change to only include restaurants and movie theaters.
You really have to stay on top of your game with these credit cards because you have to keep track of where to use your card to earn 5% cash back. They generally have limits on how much bonus cash back you can earn.
Travel Rewards Credit Cards
Travel rewards credit cards are often very complex, both in how you earn points and how you can redeem them. There are exceptions to the rule, but most cards require a lot of thought and research.
Travel rewards cards may earn you points for a particular airline or points you can redeem for any travel purchase. The value of these points will vary from card to card, so 1 point on Card A may be worth 5 points on Card B. This makes it hard to determine which card is best for you.
On top of the complicated rewards earning structures, redemption for free flights or hotels can be very frustrating. Not all cards allow you to book a flight with no blackout dates or offer a flat rate structure.
If you’re new to credit card rewards, you might want to skip out on the travel rewards credit cards until you can do a bit of research. Alternatively, if you can find a simple travel rewards credit card to use, and they do exist, sign up for those instead.
Sign-Up Bonus Credit Cards
Sign-up bonus credit cards are my personal favorite. Generally, they’re one of the above credit card types, but in addition to regular rewards, you can earn an extra bonus when you sign up by meeting special requirements.
Some credit cards will award your bonus upon your first purchase, after you spend $3,000 in the first three months of being a card holder or after some other designated event. This is the quickest way to earn credit card rewards, but just be careful that you’re not overspending to hit the spending thresholds.
All of the above credit card types have their benefits and their drawbacks. Make sure to find a card that best matches your spending patterns and will maximize your rewards after you account for any expenses like annual fees.
One last thing. Don’t forget to actually use all of those rewards you’ll earn.
