How to earn cash back with your credit card
Are you looking to put a little money back in your pocket? Cash back rewards can help you earn cash back from the money you spend using your credit cards. If you're using your card for purchases you would make anyway, it's effectively like getting a bonus or rebate for your spending.
Some cards offer a standard percentage of cash back on all purchases, typically between 1% and 2%. However, other cards can offer up to 6% cash back in select spending categories like travel, grocery stores and streaming services. Just remember to pay off your balance in full each month to avoid interest charges, and be careful about signing up for any card that charges an annual fee. Otherwise, your interest and fees could cut into – or even negate – any rewards you reap.
Before you open up any new credit cards, make sure your credit is in good standing. Use online tools to monitor your credit score closely and get alerted to any major changes.
How to earn cash back with your credit card
Credit card issuers provide cash-back rewards to their cardholders in dollars or points as a "reward" for using their credit card. Cash-back rewards usually work on a percentage basis. In other words, if you spend $100 using a cash-back card with a 2% rate, you would earn $2 cash back.
Just note: In order to take advantage of rewards, you'll need a good or excellent credit score. Find out your score now!
Typically, you have three credit card options for earning cash back rewards.
Flat rate cash-back cards
No hoop-jumping is required with these no-fuss cards. You earn rewards by the same percentage on all eligible purchases. While flat rate cards may be the easiest to use, the rewards percentage may be lower than you would earn with fixed or rotating category rewards cards.
Fixed category rewards cards
With a fixed category rewards card, you'll earn cash back for all spending within specified categories such as travel, restaurants or groceries. Rewards rates for spending categories vary from card to card. If you tend to spend heavily within a specific category, getting a credit card that provides elevated rewards for that category makes sense.
Rotating category rewards cards
Rotating rewards cards operate like fixed category cards, but the categories providing higher rewards change regularly, typically every quarter. For example, your card may offer 5% back on flights and hotel purchases during the year's first quarter and switch to offering 5% back on entertainment during the second quarter.
How to maximize cash-back rewards
Here are four ways to get the most mileage out of a cash-back rewards credit card:
- Take advantage of promotions: One of the best ways to accelerate your cash-back earnings is to sign up for extra earning opportunities. Keep a keen eye out for email promotions with limited-time offers to earn bonus cash back.
- Transfer points: If you travel regularly, transferring points is one way you can maximize your travel rewards. Major card issuers have their own types of points you can transfer for various airlines and hotels.
- Choose the right card: Make sure any credit card you're considering offers a rewards program that aligns with your spending behavior. For example, there's no sense in signing up for a travel rewards program if you don't plan on traveling.
- Plan ahead: You may be able to view your card issuer's rewards calendar on their website. Doing so may allow you to preview the rotating rewards categories for the rest of the year and plan your purchases accordingly.
How to redeem your cash-back rewards
With a cash-back rewards credit card, you'll earn cash back on any eligible purchase you make with your card. Some transactions, like balance transfers and gambling-related purchases, don't qualify for cash-back. But in most cases, you'll earn a small percentage on most of your credit card purchases, which can add up over time. Some credit cards give their cardholders cash back by depositing it into their account as a statement credit. Others offer several redemption options, often in the form of points.
Rewards points work the same as cash-back, and you can usually redeem them for cash or other valuable credit card perks like free travel, merchandise, or gift cards. Exchange rates vary depending on the card issuer, but miles and points are usually worth around 1 cent per point. As such, 100 points are worth $1.
Generally, card members can redeem rewards on a card issuer's online marketplace in several different ways, such as:
- A statement credit: Your card issuer will apply your cash back to your credit card balance.
- A bank deposit: You can choose to have your credit card company deposit your cash back directly into your bank account.
- Gift cards or merchandise: Most credit card issuers allow you to redeem your cash back through their rewards portal for gift cards and merchandise at partner department stores, restaurants, retail outlets and more.
- Travel: Many rewards programs offer the opportunity to use your points to book airfare, flights and rental cars.
Keep in mind that some cash-back rewards programs require a minimum rewards balance to redeem your cash rewards.
What credit score do you need?
The higher your credit score, the greater your odds of approval increase. With a credit score of 740 or higher, you're most likely to be eligible for premier credit cards offering top-tier rewards like sign-up bonuses and airport lounge access. If your credit score is below 670, consider taking steps to improve your credit before applying for a new cash-back credit card.
Checking your credit reports or score won't lower it, so start monitoring it today!
The beauty of cash-back credit cards is that they reward you for purchases you're already making and allow you to earn cash back, travel rewards and other perks. By choosing the right card, taking advantage of extra earning opportunities, and using your card responsibly, you can reap hundreds of dollars or more in rewards each year.
