Before we move on to the rewards cards, it’s important to explain the purpose of credit cards. These cards play two important roles for both the provider and the cardholder involved with the facility. The dual-purpose exists for the sake of both the lender and the user. (See Credit Card Basics You Should Know)
The lender is usually the bank. Banks issue credit cards as they benefit from such action by charging the APR on the account. All costs of lending money through the credit card facility are described as the annual percentage return or APR.
Every time a card owner swipes their card at a merchant or retailer, the lender or bank makes a fee for the service from the merchant. The service fee goes up to 4% of the sale. Every merchant is required to pay the service charge costs, as these costs are the percentage from the proceeds of the sale.
By doing so, the merchants are allowed to compete in a competitive marketplace for any business. On the other hand, the cardholder gets a chance to choose to shop with other retailers.
Put simply, a cardholder takes a loan to make a purchase, and the lender or the bank charges them APR interest on the amount they loaned so that both parties involved are satisfied.
The lender or the bank makes money from the APR while the cardholders get the privilege of making the wanted purchase. Credit card APR ranges from 16 to 25% and sometimes goes even higher. It depends on an applicant to an applicant as not every person has the same credit score at the time of their application.
People with good credit scores can apply for the best interest rates, while users with low credit scores receive the highest rates. Each cardholder is required to make monthly payments to the card provider. These payments include interest on the outstanding funds.
The interest is set by the APR on the credit card facility the cardholder selected. The lenders, banks, and providers make profits off of pocketing the interest charges to keep shareholders happy and increase their bottom line.
As a card user, you enjoy the benefit of not having to pay for a product you’ve bought right away. A credit card allows you to buy now and pay later. That benefit costs you the bank APR interest on your current outstanding balance.
Because of that, many people are interested in credit cards as they allow them to make purchases that they wouldn’t be able to afford. The credit facility allows you to extend your purchasing power.
Credit Card Rewards Programs
When looking at the credit card market from the lender’s perspective, we can safely say that it’s quite a competitive landscape. There are thousands of credit card lenders, all competing to attract more users to their products.
(a)The APR is probably the first thing people will look into before they decide to apply for any credit card facility. Your credit score is what sets the APR rate, and most card providers charge the same rate. Aside from this primary factor, (b) the second one is the rewards program.
It’s how lenders gain a competitive advantage that helps them secure their business. The rewards programs are attached to credit card facilities, and the cardholders initiate these programs by using their cards. These programs are like promotions with the main purpose set at attracting new card users.
They come in a wide variety of formats. They can be pretty much anything, from discounts on vacation packages, hotel fees, and car rentals to frequent flyer miles. They can also include cashback rewards. Most lenders provide a points system with authorized retailers where cardholders can buy at lower or discounted prices.
Match your rewards program with your lifestyle
Having a great credit card with a good and beneficial rewards program can change your entire lifestyle for the better. Think about your business and your life. If you’re jet-setting business person, you probably travel a lot, which involves a car and hotel rental fees, flight costs, and additional charges.
Saving money on all your purchases is an excellent way to build up your credit score (Read How to Fix & Protect Credit) and make the most out of your budget. That’s why you need a credit card with an excellent rewards program that allows you to manage all your expenses efficiently.
The best thing about credit card rewards programs is that most card providers are fully aware of the diverse needs that their users have. That’s why most of them institute rewards programs that can be tailored to better suit specific financial needs and lifestyle requirements of each cardholder.
For example, if your lifestyle includes taking frequent flights, applying for a credit card with a frequent flyer miles rewards program seems like the best thing to do. However, if you haven’t been on a plane for a couple of years, having a card with such a reward program is pretty much useless to you.
You should always look for an option that completely benefits your current financial position. If saving money on your monthly shopping is your financial goal, look for a rewards program with those kinds of benefits.
The whole point of having a credit card is to upgrade the standard of living and make better financial choices that will improve your financial situation and well-being.
Always ask for the rewards programs available with your lender before you apply for a credit card facility of your choosing. Your rewards structure must match your lifestyle and financial requirements. That way, you can leverage your budget to enhance the quality of life. (Related: Search Card by Card Design)
Cash Back Rewards
Money is the most powerful and motivating financial incentive. That’s why you should look for lenders that incentivize your credit card use with money. That type of motivation is included in a cashback rewards program. It’s the most popular format of a rewards program as every consumer is looking to save money on their expenses.
When compared to hotel rewards programs or frequent flyer miles, cashback rewards programs are on top, judging by their popularity. There are three ways of getting your cashback with this type of program:
- You receive your cashback rewards by check from the lender
- Redeem for cash for making other purchases
- Or, you choose to add your cashback rewards to your current outstanding balance
Different lenders offer different rewards programs
The biggest reason why people apply for credit cards is that they want to gain access to more credit. The problem is that more than 70% of consumers don’t even give thought to rewards facilities or APR rates on offer from the card provider.
Then, there’s also the fact that the great majority of potential cardholders don’t even bother to compare other lenders to their bank or the chosen card issuer. Making inquiries for different credit card facilities outside of your current lender is one of the best ways to discover the right facility, as well as the rewards program that suits your financial needs.
Our warmest recommendation is to never go with the first deal you get or find. Always check out as more lenders as you possibly can to compare their rates, rewards programs, and other terms, to make an educated decision.
Applying for a credit card is like making a long-term investment. You should tread very lightly to avoid putting yourself in a bad financial situation and bite more than you can chew. Here are some great tips that we think you should do before you apply for a card:
- Do some research online to find out who your prospective card issuers are
- Consider the fact that your current card lender isn’t the right one for your financial needs
- Banks are usually not the best card lenders as there are many additional costs of their operations that end up added to your balance
- Online lenders don’t have the same overheads as banks do and they tend to offer lower APRs
- Online lenders usually offer better rewards programs than banks
- Always compare the rewards and facilities before you apply
- Applying for the right credit card can help you save thousands of dollars annually
Avoid Low Rewards Programs
In case you didn’t know, it’s absolutely possible to lower your average credit card debt. There are persons who have up to 5 credit cards, where each card has varying APR rates. More importantly, most of these cardholders aren’t even aware of rewards programs they might have with the cards they own.
Different credit cards have different rewards programs, but the problem is that most cardholders don’t know how to manage these facilities, or they simply aren’t aware of them. If you have more than one credit card facility at the moment, it’s time for a serious audit of each card.
Having multiple card facilities means paying lots of APR rates without reaping any of the benefits of the rewards programs that go with these facilities. The most common case scenario is that multiple cards have pretty much the same APR but different rewards programs that probably don’t suit your current financial needs.
You end paying huge monthly payments without getting a chance to save some of the money you spend. Therefore, do thorough research on the card you have to find out what the APR rates and rewards programs are.
Get rid of the cards that don’t suit your financial situation and stick only with the ones that interest you. Use only those cards for all purchases from now on. Here’s one great advice – don’t close all the cards at once because it could damage your credit score.
Make sure you pay all your debts per account and close one account per month. You can easily mitigate any additional expenses while making your credit score look good. From now on, use only one to two cards for all your purchases to maximize your potential rewards.
Credit Cards with Different Rewards Programs
Credit cards with rewards programs allow cardholders to earn premiums for using their cards to make purchases. These incentives accumulate with each purchase a user makes, and they can redeem their premiums for various rewards. There are seven major types of rewards cards:
- Cashback credit cards
- General reward points credit cards
- Travel or hotel points credit cards
- Retail rewards credit cards
- Gas credit cards with rebates or points
- Airline-specific credit cards
- Generic airline miles cards
Reward Credit Cards Frequently Asked Questions
Yes, there are:
- You can receive free items and earn incentives for each purchase you make with your credit card
- There’s a suitable reward program for big spenders that they can use to accumulate points and win rewards
- Cardholders can choose from a wide range of different rewards
- Rewards can be based on a rotating schedule and change every 3-4 months
- Rewards programs can be tailored to fit your lifestyle better
Many rewards cards include bonus features such as concierge service, price protection, complimentary travel insurance and so on
To earn maximum reward points, follow these steps:
- Use your credit card for each purchase you make
- Fly with linked airlines and shop only with affiliated partners
- Take advantage of all incentives when you get a chance
- Use your card to pay the bills
- Use your card as much as you can
The most important thing to keep in mind when choosing a rewards card program is to go with the only that suits your current credit score, financial situation, and spending habits. Pay attention to details like:
- Points expiry
- Caps on point earning
- Points redemption
- Your interests
- Point value
Yes, there are. You get all these rewards and benefits, but they don’t come without a price. Here is the list of rates and fees associated with rewards cards: