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 Dan Scheidtmann, the product marketing manager for our credit cards and other retail products here at Fremont Bank, for tips on how to choose.
First, a “rewards card” is a credit card that offers a reward when you use the card to make a purchase. Rewards can come in a range of forms: cash back, points, miles, etc. 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 card 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: Earning consistent rewards for all your purchases. Great for those new to rewards cards.
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 give you simple, flexible cash rewards that you can use any way you please, from a statement credit to a cash deposit into your checking or savings account. They’re a great option for any situation where you might use a debit card as well.
All of the rewards cards offered at Fremont Bank are cash back cards, which have a low interest rate and some include no annual fee. Our World Mastercard(r) offers 3% cash back on travel and dining, making it a great option for frequent travelers.
The card that goes out into the public with you has the vulnerability to be compromised, lost, or stolen. Therefore, it’s important to have separate cards for recurring payments like bills (that you keep at home) and out-of-home spends 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.
Best for: People saving up for a dream vacation or who want to maximize their travel perks.
Similar to cash back cards, points cards will give you a benefit back for all of your spending, but in points that can be redeemed for hotel stays, plane tickets, or merchandise. Redemptions are typically made through a dedicated website set up within your credit card account or directly through travel partners.
The most popular type of points card is typically a travel rewards card, which is a great option if you are loyal to one particular airline or hotel. Otherwise, a points card that allows you to redeem with many different merchants will provide the most flexibility.
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. You can also utilize an everyday cash back card and a travel rewards cash back card if you don’t want to manage points. Fremont Bank offers both.
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. While these cards may not always offer rewards, they oftentimes will offer a discount on large purchases or the ability to pay over time with no interest.
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. Additionally, store-branded credit cards often carry a much higher APR, so unless you’re taking advantage of promotional financing, you may be better off making large purchases with a card that has a lower rate or offers you rewards. 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 annual fees 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 are 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 us for more guidance. And don’t forget to sign up for our newsletter using the form at the bottom of this page