Financial Tips

Unscrambling the world of credit card rewards

Rewards points? Cash back? How to choose the right credit card for you.

From cash back to travel rewards to points, there are so many options in rewards credit cards. It can be hard to know what’s right for you. We tapped our resident experts here at Fremont Bank for tips on how to choose.

What’s most important to remember is that there’s no one-size-fits-all solution for rewards credit cards, and the card that may be right for you could change over time based on your spending habits and life events.

Choosing the right rewards credit card starts with how you’re planning to use the card. Ask yourself: Is this for everyday spending, or is it for something specific, like travel, dining, or a large purchase associated with a life event? How many credit cards do you already have? Do you plan to carry a balance or pay the card off each month? Here’s our guide to answering these questions:

Cash back cards

Best for: everyday expenditures or offsetting costs

For everyday expenditures, like bills and groceries, it makes sense to get rewards to offset the cost and give you something in return. Unless you’re very loyal to one store, the best option here is a cash back credit card. Cash back cards are a simple way to dive into the world of credit card rewards, since it’s easy to understand how you’re rewarded for your purchases. Cash back cards can be a great option for any situation where you might use a debit card as well.

Many of our cards at Fremont Bank are cash back cards that have a low interest rate, and some include no annual fee.. A card with a lower rate is a great option for a balance transfer to consolidate debt as you pay it off.

Pro tip

The card that goes out in public with you has the vulnerability to be compromised, lost, or stolen. Therefore, it’s important to have separate cards (that you keep at home) for recurring payments like bills and out-of-home spending like gas, restaurants, etc. Having a second card at home that’s only used for recurring payments creates a failsafe so you don’t have to set up the payments again if the card gets lost or stolen.

Points cards

Best for: people who travel and eat out

If the card isn’t going to be used for everyday expenditures, consider a points card. Similar to cash back cards, rewards points cards will give you a benefit back for all of your spending, but in points that can be exchanged to pay for qualifying purchases. The most popular type of rewards card is typically a travel rewards card, which gives you a higher percentage back for higher-end world products like travel and dining and a lower percentage back for everyday purchases.

Keep in mind that travel rewards can include gas, public transit, rental cars, and more, so this card could be appropriate for you even if you’re not a frequent flier. Someone who dines out frequently and wants to use those points to pay for gas, for example, might also consider this type of rewards card. If you’re someone who is getting out and about a lot, utilizing both traveling and dining services, this could be the right choice for you. If that doesn’t sound like your lifestyle, the cash back card would work better.

Pro tip

Keep in mind that you can fall into multiple buckets and utilize different rewards cards for your travel/dining expenses versus your everyday expenses. While there isn’t a magic number of cards each individual should have, somewhere between two and five is usually easiest to manage.

Brand-specific cards

If you’re experiencing a big life event, like a wedding, becoming a parent, or buying a house, a card for a specific brand or store can be a good choice. For example, in the case of buying a house, you might consider a card from Home Depot or Lowe’s if you plan to buy several large appliances. The points you earn as you make purchases can be applied to your future purchases at that store.

Pro tip

Some brands will let you convert your points earned into points for other brands, but if you aren’t planning to use the points at the store they’re for, it might be time to close the card. You can open and close these cards as you need them or no longer need them, but be mindful of multiple credit inquiries in a short period of time.

When a rewards card may not be the right choice

Finally, after you’ve considered these options, it’s important to ask if a rewards credit card is right for you after all. Keep in mind that rewards cards can often come with an annual fee and higher interest rates, meaning you may end up paying more for those rewards. If you don’t plan to use the rewards, the annual fee and interest aren’t worth it.

If you going to carry a balance on the card instead of paying it off monthly, a rewards card isn’t an ideal option. The rewards may not make up for the interest you’re paying over time on a higher-interest rewards card. If you don’t have the cash flow to pay off these large purchases and plan to carry a balance, a non-rewards card is the better option. Non-rewards cards with no introductory APR will give you more flexibility to pay off those large purchases without accruing more interest. You won’t get any points, but you also won’t amass more debt.

Still having trouble deciding? Check out our Credit Card Comparison Tool or reach out to one of our associates for more guidance. And don’t forget to sign up for our newsletter using the form at the bottom of this page.