Before we move on to the rewards cards, it’s essential to explain the purpose of credit cards. These cards play two crucial roles for the provider and the cardholder involved with the facility. The dual purpose exists for both the lender and the user. 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 must pay the service charge as these are a percentage of the sale proceeds. By doing so, the merchants can compete in a competitive marketplace for any business. On the other hand, the cardholder can choose to shop with other retailers.
Put, 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 purchase they want. Credit card APR ranges from 16% to 25%, sometimes 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 APR sets the interest on the credit card facility the cardholder selected. The lenders, banks, and providers profit from 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 immediately. A credit card allows you to buy now and pay later. That benefit costs the bank’s APR interest on your outstanding balance. Because of that, many people are interested in credit cards as they allow them to make purchases they couldn’t afford. The credit facility will enable you to extend your purchasing power.
RELATED: Credit Card Basics You Should Know
Credit Card Rewards Programs
Looking at the credit card market from the lender’s perspective, we can safely say it’s competitive. There are thousands of credit card lenders, all competing to attract more users to their products.
- The APR is probably the first thing people will look into before applying for any credit card facility. Your credit score sets the APR rate, and most card providers charge the same rate. Aside from this primary factor
- 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 them using their cards. These programs are like promotions with the primary purpose of attracting new card users. They come in various formats and can be pretty much anything, from discounts on vacation packages, hotel fees, car rentals, and 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
An excellent credit card with a good and beneficial rewards program can improve your lifestyle. Think about your business and your life. If you’re a jet-setting business person, you probably travel a lot, including 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 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.
RELATED: How to Fix & Protect Credit
The best thing about credit card rewards programs is that most card providers fully know their users’ diverse needs. That’s why most institute rewards programs tailored to each cardholder’s specific financial needs and lifestyle requirements. For example, if your lifestyle includes taking frequent flights, applying for a credit card with a frequent flyer miles rewards program seems the best thing to do. However, having a card with such a reward program is useless if you haven’t been on a plane for a few years.
You should always look for an option that ultimately benefits your financial position. If saving money on your monthly shopping is your financial goal, look for a rewards program with those 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 applying for a credit card facility. Your rewards structure must match your lifestyle and financial requirements. That way, you can leverage your budget to enhance your 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 reward program format as consumers want to save money on expenses. Cashback rewards programs are on top, compared to hotel rewards programs or frequent flyer miles, 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
- You can also add your cashback rewards to your current outstanding balance.
Different lenders offer different rewards programs
The biggest reason people apply for credit cards is to access more credit. The problem is that more than 70% of consumers don’t even consider rewards facilities or APR rates from the card provider. Then, there’s also the fact that most potential cardholders don’t compare other lenders to their bank or the chosen card issuer. Making inquiries for different credit card facilities outside your current lender is one of the best ways to discover the right facility and 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 many lenders as possible 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 biting off 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 many additional costs of their operations 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
If you didn’t know, lowering your average credit card debt is possible. Some persons have up to 5 credit cards, each with varying APR rates. More importantly, most of these cardholders aren’t even aware of rewards programs they might have with the cards they own. Credit cards have different rewards programs, but the problem is that most cardholders don’t know how to manage these facilities or aren’t aware of them. If you have more than one credit card facility now, it’s time for a serious audit of each card.
Having multiple card facilities means paying lots of APR rates without reaping any benefits of the rewards programs that go with these facilities. The most common scenario is that multiple cards have the exact APR but different rewards programs that probably don’t suit your current financial needs. You end up making substantial monthly payments without getting a chance to save some of the money you spend. Therefore, do thorough research on the card, and 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 piece of advice: don’t close all the cards simultaneously because it could damage your credit score. Make sure you pay all your debts per account and close one account per month. You can quickly mitigate 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 user purchase, 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
- Crypto Rewards (Know About Crypto Cards)
- Generic airline miles cards