Credit Cards

How to Use Reward Credit Cards: Complete Guide

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When opening a credit card facility with a lender, most Americans are so focused on getting approved, that they neglect to check for the perks and benefits of using the card.

Almost every credit card provider offers some form of rewards program attached to the facility.

Rewards programs should be a deciding factor in selecting your card facility, as much as the APR the bank or lender charges, and the promotional interest period.

Credit cards and rewards programs are a useful financial tool that can help you enhance your quality of life if you choose the right lender and facility.

Read: What are the Best Rewards Credit Cards: Complete Guide

The Purpose of Credit Cards

It’s important to understand that credit cards serve a dual purpose for both parties involved with the facility.

Banks benefit from issuing you a credit card, due to the APR they charge on the account. Annual Percentage Return describes the cost of loaning money through the facility. Every time you swipe your card at a retailer or merchant, the bank or lender makes a service fee from the merchant, which may be as high as 4-percent of the sale.

This service charge costs the merchant money from the proceeds of the sale, but it allows them to compete for your business in a competitive marketplace where you have the choice to shop with millions of retailers.

The bank or lender makes money by charging you APR interest on the money you loan to make the purchase. APR on credit cards is typically anywhere between 16 and 25-percent, depending on your credit score at the time of your application.


Read: APY vs APR: What Do They Mean & What’s The Difference?

Clients with a good credit score receive the best rates, while customers with low credit scores, (under 680 on the FICO scoring system), receive rates closer to the top of the range.

When making your monthly payment to the lender, it includes the interest on the outstanding funds, as per the APR on your credit card facility. The banks pocket the interest charges as profit, and it helps to grow their bottom line and keep shareholders happy.

As the customer, you have the advantage of buying now and paying later, in exchange for paying the bank APR interest on your outstanding balance. Credit cards help you to extend your buying power and make purchases that you would otherwise not be able to afford without the credit facility.

What Are Credit Card Rewards Programs?

The credit card market at the lender level is a competitive environment, with dozens of lenders trying to attract you to use their products. While APR is a primary factor for people who are looking into a credit card facility, most lenders charge the same APR rates, as per your credit score. Therefore, the APR doesn’t give them much competitive advantage in securing your business.

As a result, lenders need to create a competitive edge to attract you to their facility, and they do so by initiating rewards programs for using the card.

Rewards programs come in various formats, from frequent flyer miles to discounts on car rentals, hotel fees, and vacation packages. Some lenders offer cashback rewards programs, or they may provide a points system that allows you to spend at authorized retailers that take part in the program.

Reward Credit Cards

Read: What are Rewards Credit Cards? Everything You Need to Know

Pick Rewards Programs that Match Your Lifestyle

Are you a jet-setting business person? How much do you spend on flights every year? What about hotel costs and car rental fees when you arrive in a new city?

Do you do your monthly shopping at a retailer, and wish there was a way you could save money on your purchases?

The chances are that you want to acquire a credit card to help you manage these costs more efficiently. Fortunately, credit card issuers realize your needs, and they institute rewards programs tailored to your specific lifestyle requirements.

For instance, if you’re a stay-at-home mom with three kids, and you haven’t stepped on a plane in over a decade, then applying for a credit card rewards program that offers frequent flyer miles is practically useless to you.

However, earning cashback on your monthly shopping could benefit your financial position, or allow you to upgrade your standard of living and food choices for your family.

When applying for your credit card facility, it’s critical that you ask the lender about their rewards programs on offer. Structure your rewards to match your lifestyle, and leverage your spending to enhance your quality of life.

Compare Reward Credit Cards

Card Options

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The Benefit of Cash Back Rewards

When you sign up for a cash back rewards program, the lender incentivizes your use of your credit card facility with the most powerful financial incentive – money. Everyone wants to save on their expenses, and it’s for this reason that they are so popular.

A recent survey by shows that cashback rewards programs are more than three times more popular than frequent flyer miles or hotel rewards programs. In most cases, the lender allows you to apply the cash back rewards to your outstanding balance, or redeem the cash for other purchases. Some lenders will even mail you a check for your cashback rewards.

Compare Rewards from Different Lenders

According to research, consumers apply for credit cards based on an impulsive desire to gain access to credit. More than 70-percent of cardholders don’t shop around for APR rates, let alone think about the rewards facilities on offer from the lender.

Also, more than 80-percent of cardholders don’t make an inquiry for a credit card facility outside of their current bank. This strategy is a foolhardy way to apply for a credit card, and you don’t do yourself any favors by going for the first deal you find.

Before you apply for a card, do some research online for prospective lenders. Your bank may not be the best option for choosing your provider. Banks incur massive overheads from physical locations and staff required to run the establishment, and they pass these costs onto the consumer.

Online lenders don’t have anything like the same overheads as a brick-and-mortar location. As a result, they can offer you lower APRs and better rewards programs as well. Compare the facilities and rewards on offer before you make your decision, it could save you hundreds of dollars annually if you take the time to shop around.

Get Rid of Cards with Low Rewards Programs

Research shows that the average credit card debt for American households sits at $8,402, as of May 2019. The total consumer credit card market accounts for $1.07-trillion among 128-million U.S households. This period is the first time that total credit card debt exceeded the $1.02-trillion peak reached before the Great Financial Crisis in 2008.

Some Americans may have up to 5-credit cards, all with varying APR rates and different rewards programs. However, many Americans have no interest in the rewards programs and no idea how to manage these facilities.

If you currently have multiple credit card facilities, it’s time to sit down and do an audit of each rewards program on offer. The chances are that all your cards will have the same APR, but they have different rewards programs. Analyze the rewards on each of the accounts, and pick the top two that interest you.

Close the other credit card accounts, and use those specific cards you identified in your audit for all your purchases going forward. However, it’s vital that you don’t close all the accounts at once – doing so could damage your credit score. Close an account every other month to mitigate any chances of lowering your credit score.

Use One Card for Spending to Maximize Points

After completing your audit on your credit card facilities, narrow down the top card offering the best rewards for your spending. Maximize your spending on this card to achieve the best rewards possible on your purchases.

Adopting this strategy allows you to get the most bang-for-your-buck on your spending by increasing the amount of rewards points you accumulate over the year. However, it’s vital that you understand the utilization ratio banks and credit bureaus use to calculate your credit score.

Lenders don’t like to see you max out your credit card facility. Instead, they want to see you keep at least 70-percent of your facility available at all times. In other words, if you have a credit card with a $3,000 limit, don’t spend more than $1,000 on this card.

If you exceed this utilization ratio, then you’ll end up damaging your credit score. Should the average spending on your credit cards total $3,000 per month, it’s best to spread this across three cards with a limit of $3,000 each.

Check the Expiration Date on Points

When applying for your credit card facility, it’s a prudent move to read the fine print before you sign on the dotted line. In the terms and conditions, check the lender’s policy for the expiration of your rewards points. Most lenders offer you a window of between 12 to 18-months to use your points before they expire and your account goes back to zero.

However, the best lenders will offer you a 24-month period to spend your points before they expire. Look for agreements that state you get a rollover of your points if you repurchase them from the lender, or you can offer to buy them at the end of the expiration period.

Avoid Annual Fees on Your Credit Card Facility

As mentioned, with so many credit card lenders available, it’s a competitive marketplace, and many lenders are willing to do whatever it takes to secure your business. Many credit card providers waive the annual fees involved with the facility as an incentive to bring you on board as a client.

Before you sign up with the lender, look at the annual fees and how they relate to the rewards program. At the very least, the lender should provide you with more rewards than they charge in yearly fees.

However, most credit card facilities offering travel-related rewards, such as frequent flyer miles or hotel stays, will still charge an annual fee on your account. In this case, pay attention to your use of the rewards. Even a small yearly fee can negate the value of your points if you aren’t using them.

Cashback rewards programs typically don’t come with any annual fees, and even if they do, then calculate your spending and rewards versus the cost of the annual fee before signing up.

Other Types of Credit Cards

In Closing – When Should You Avoid Using a Rewards Credit Card?

While this article may have you believe that it’s essential for you to have a rewards program attached to your credit card facility – there are times when it has no value to your financial position.

If you don’t pay your credit card bill every month, it could be adversely affecting your finances. If your credit card facility has an APR of 17-percent or more, and you let the debt rollover past the promotional or moratorium period, then it costs you money to run a rewards program.

As an example, if you have a cashback facility on your credit card, you may earn between 1 to 5-percent back on your spending. However, if you don’t pay the balance in full every month, you’re going to be en paying a hefty sum of interest on the account that defers the benefits of your rewards.

In this case, it would be a prudent financial move to pay for everything with cash, rather than to use your credit card only for the benefit of receiving cashback on your purchases. It’s vital that you pay off any of your outstanding consumer debt before you apply for a credit card facility with a rewards program.

If you are already using a credit card facility, stop using your credit cards for a few months, and get your finances together. Once you have your finances under control, you can start using your credit cards again to take advantage of the rewards programs, as long as you maintain your strategy of paying off your credit card bill at the end of every month.

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Oliver Dale is Editor-in-Chief of MoneyCheck and founder of Kooc Media Ltd, A UK-Based Online Publishing company. A Technology Entrepreneur with over 15 years of professional experience in Investing and UK Business.His writing has been quoted by Nasdaq, Dow Jones, Investopedia, The New Yorker, Forbes, Techcrunch & More.He built Money Check to bring the highest level of education about personal finance to the general public with clear and unbiased

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