If you're already using a credit card, you know how helpful it can be for large purchases – especially at the end of the month before your paycheck clears. However, a regular credit card doesn't reward you for using it often. A rewards credit card does though.

When you make purchases with a rewards card, those dollars spent earn you points or a percentage of cash back. A rewards credit card can be a useful tool in your financial belt because you can earn cash, frequent flier miles or points for every purchase you make. You can trade in your points for items like gift cards to your favorite stores, a night's stay at a hotel and more. Some of the best rewards credit cards give you extra incentives to pay your bill in full and on time by offering double rewards. However, credit card rewards aren't worth it if you don't use your card responsibly – in fact, it can cost you more.

Although rewards credit cards typically don't have an annual fee, they often have higher interest than other credit cards. This means the company issuing credit to you is banking on you not paying your bill each month. If you don't pay your monthly bill on time and in full, you may be subject to paying inordinately high rates of interest to the credit card company, which negates the rewards you're earning. The key to making rewards credit cards work for you is knowing how they work, choosing the right one for you and knowing how to avoid the costliest mistakes. Three credit cards companies that you can consider are American Express, Discover and Capital One.

Benefits of a Cash Back Credit Card

The best cash rewards credit cards charge you no annual fee. The credit card company is making money from the businesses you make purchases at. As long as you pay off your balance each month in full, you can make a cash back card worth it. The percentage you get back is in the single digits, though, so you can negate your earning potential with a single late payment or by carrying a balance month to month. Many cash back credit cards offer bonuses when you sign up, but you need to make sure you can afford to meet the requirements to earn those bonuses. For example, a card may offer you a sign-up bonus of a couple hundred dollars, but you have to spend twice as much in a three-month period with your credit card. So, be sure to budget for those purchases to earn the most money back as possible. You may be lured by cash rewards credit cards that offer higher percentages of cash back, but be aware of the annual fee and do the math. Earning 6 percent cash back on grocery purchases with American Express is tempting, but you need to make sure you're using the card exclusively and spending enough on monthly purchases to pay for the annual fee and then some to actually get cash back. Also, credit card companies may place limits on the amount of money that is actually eligible for you to earn cash back on. If the card limits your purchases to $6,000, the most money you can earn back is $360, and if you have an annual fee to pay, you'll have to subtract it from that total.

American Express

American Express offers three cash back rewards cards, including Blue Cash Preferred, Blue Cash Everyday and Blue Cash rewards cards. You can earn other rewards with other cards from American Express, such as Blue Sky, Amex Everyday and Blue.

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Benefits of a Travel Rewards Credit Card

If you plan to travel often, a rewards credit card, such as the BankAmericard Travel Rewards option, offers frequent flier miles may be a better fit for you than a cash back card. For every eligible purchase you make, you can earn tens of thousands of miles that you can turn into free airfare.

The first thing to look for when shopping for the best travel rewards credit card is a hefty sign-up bonus. Some of these bonuses have rules attached to them though. In order to be eligible for the bonus, you may only have to be approved for the card and pay the annual fee. Others, however, may require you to meet a minimum purchase amount in a certain amount of time. For example, you could earn 50,000 frequent flier miles with a travel rewards credit card if you spend $3,000 in the first three months.

To continue earning miles after getting the big bonus, you keep making purchases with your travel rewards credit card. Most cards will grant you two points or miles for every dollar you spend, but some offer three times the points or miles. If you stick to a particular airline and use a credit card specifically to earn miles for that airline, you can find other ways to earn miles. An airline may partner with retailers to encourage you to buy, and it's within these shopping portals and special offers you can find ways to earn even more miles per dollar you spend.


Bank of America offers a couple of rewards credit cards to help you get something back each time you use your credit card. The BankAmericard Cash Rewards card gives you cash back when you use the credit card for common purchases, such as gas and groceries. BankAmericard Travel Rewards card lets you earn miles for every dollar you spend on all purchases. Both of these cards are available with no annual fee.

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When to Choose a Points Credit Card

If you aren't tied to the idea of earning cash back or frequent flier miles specifically, you can opt for a points credit card like those offered by Citi Bank. These credit card rewards work the same way miles do in that you earn a number of points per dollar you spend. You can then redeem the points for a variety of rewards from the credit card company's partners. Those points can be converted into cash, miles, gift cards or actual items.

To stretch your points, you want to time when you redeem your points just right. Often credit card companies offer discounted gift cards, so you can take advantage of those sales. If a $100 gift card normally costs 10,000 points, but the discount drops it down to 80,000 points, it's like getting $100 for $80.


Citi Bank offers plenty of different rewards cards for every budget, giving you the opportunity to earn cash back, points and travel rewards. The rewards credit cards you can choose from include the ThankYou Preferred Card, ThankYou Premier Card, Prestige Card and the popular Double Cash Card. Each one may include a sign-up bonus, but check Citi's website as the offers are subject to change at any time.

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How Rewards Credit Cards Work

If you arm yourself with the knowledge of how credit card companies make money, you can better understand how to ensure you don't get caught in a credit card loop where you owe more money than you earn.

The name of the game for a credit card company is fees. If you read the fine print of most credit card terms, you find that the company may charge you an annual fee, late fee, balance transfer fee, cash advance fee and over-the-limit fee. In addition to these common fees are interest rates and a percentage from the merchants you're purchasing from. They even make money selling your information to other creditors who want to lend you money. These companies make billions each year.

Credit cards that offer rewards give you incentive to buy items you may or may not need and to spend beyond your means. The more often you use your card, the more rewards you can earn. The credit card companies are counting on you spending more than you can afford, and carrying a balance into the next month. If you do that, the company can charge you interest, which is pure profit for them.

So, when you earn cash back, for example, you're getting a percentage of the cut that the credit card company is earning from merchants you've shopped at. You're sharing in that profit if you use your card responsibly.

Many rewards cards let you earn bonuses based on where and what you buy. For example, you can earn cash back with some rewards credit cards every time you fill your car up at a particular gas station. Or you may earn frequent flier miles for every purchase you make at a certain big-box retailer. It's important to know the rules of the card you choose so you can maximize your benefits.

How to Make Rewards Credit Cards Work for You

The first rule to making sure a rewards credit card benefits you, and not just the credit card company, is to read the fine print. Make sure you know what you're getting before you sign up. Check for any restrictions or expirations. If you plan to build up your miles for a vacation, you need to make sure those miles roll over year to year.

A sign-up bonus is a great way to jumpstart your rewards, but you should make sure you can afford to meet the minimum requirements. If you can't afford to spend $3,000 in three months, choose an offer with lower requirements.

Budget for using your credit card. If you treat your rewards credit card like a debit card, you're less likely to fall into a credit trap. Use the credit card to pay for everyday purchases and set aside money from your paycheck to pay for what you charge on your unsecured credit card.

Make sure you pay your credit card bill on time every month – and pay the balance in full. If you carry a balance, you may have to pay interest. And if you pay your bill late, you are likely to pay a late fee. Paying late and carrying a balance can nullify the rewards you're earning.

A rewards credit card is a great alternative to using a standard credit card. When you use it for everyday purchases at the grocery store or gas station, or for travel expenses like flights and hotels, you’ll rack up credit card rewards you wouldn't have earned otherwise using a regular credit card or cash.