When used wisely, credit cards are a great way to get the most out of everyday spending. Rewards credit cards allow you to earn points, miles or cash back when you use your card to make purchases—all of which can add up over time with regular spending.
These cards offer a great opportunity to earn rewards on purchases that you would have made anyway. The best credit cards offer rewards with a high earning potential, competitive rates and few fees.
Here’s everything you need to know to make the most of your credit card rewards:
- Ensure your reward structure matches your spending habits
- Optimize reward categories
- Earn your sign-up bonus
- Explore redemption options
- Take advantage of all your card’s perks
- Avoid carrying a balance
- Read the fine print
1. Ensure your reward structure matches your spending habits
To select and apply for the best rewards credit card for your situation, you first need to identify your spending habits. Because different credit cards reward different types of spending, you should clearly understand what you spend your money on to maximize your earnings.
For example, if you travel frequently, you might want to select a credit card that rewards cardholders with extra points or cash back for travel expenses. If you spend a lot on groceries and gas, you should choose a card that has higher earning potential in those categories. If your spending habits are generally mixed, and you don’t tend to spend a lot in any one category, a flat-rate cash back credit card could be a good fit for you.
2. Optimize reward categories
Check your card stack for the one that offers the best rewards for what you’re spending on. Suppose you’ve just opened the Blue Cash Preferred® Card from American Express, which gives 6 percent cash back rewards on the first $6,000 you spend at U.S. supermarkets in a calendar year (then 1 percent).
If you’ve been paying for groceries with a card like the Wells Fargo Active Cash℠ Card, which offers unlimited 2 percent cash back on all purchases, you’ll want to use your Amex card instead. You’ll earn higher rewards on groceries if you pay with your new Amex card when shopping in this category up to the cap.
Also, if your new card has rotating bonus categories, you should activate the categories as soon as possible. You’ll also want to check out the rewards calendar so you can plan ahead. You may want to buy supplies for a remodel during a quarter when purchases at home improvement stores earn extra cash back, for instance.
3. Earn your sign-up bonus
Many credit cards come with lucrative sign-up bonuses that can earn cardholders hundreds of dollars in rewards if they meet certain requirements after opening an account. In most cases, credit card issuers require cardholders to spend a certain amount of money during the first few months after opening a card to be eligible for the sign-up bonus.
To ensure you qualify, read the terms of the bonus offer carefully and structure your spending accordingly. It can be worth getting this bonus because of the many ways it could benefit you financially: apply it towards a monthly payment, a large purchase or some other expense.
While you should always practice responsible borrowing and refrain from spending more than you can afford, the qualifying period for the welcome bonus is a great time to make any significant purchases you’ve been planning.
4. Explore redemption options
Go to the rewards portal for your card to learn more about the redemption possibilities. If your card offers cash back, you may be able to choose from a statement credit, direct deposit or a check. If you’re earning travel miles, the portal will tell you how to redeem those miles for airfare, hotel stays or other benefits. And if you’re earning points, you may be able to choose from gift cards, merchandise, digital media or charitable donations.
Keep in mind that with points and miles, the value of your redemptions is not always the same. For instance, redeeming for travel purchases might get you a 1-cent-per-mile value, while merchandise only gets 0.8 cents of value out of each mile.
If there’s a specific reward you want, make a note of how many miles or points you’ll need to achieve it. You can then estimate how long it will take you to earn the reward and keep tabs on your progress.
5. Take advantage of all your card’s perks
In addition to earning rewards like points, miles or cash back, most rewards credit cards also come with many other perks. Travel credit card perks can include airport lounge access, credits for hotel stays and insurance for lost or delayed luggage. Cardholders can often also take advantage of discounts on Global Entry or TSA PreCheck and insurance covering your trip’s interruption, cancellation or delay.
Many cards come with perks related to shopping and entertainment, including extended warranties on items purchased with your card and discounts and special offers for shopping with certain retailers. Cards can also come with additional features like fraud and purchase protection.
The higher the annual fee, the more perks the card is likely to come with. More premium rewards cards with fees in the $500 range often come with statement credits toward eligible travel or shopping purchases each year, but you’ll have to read the terms closely to make sure you get the full value out of these offers.
While many cardholders are understandably focused on the earnings potential of rewards credit cards, it’s definitely worth taking other related perks and benefits into consideration when choosing a card. These benefits can often save you money on things you would buy anyway.
6. Avoid carrying a balance
Putting all of your purchases on a credit card can help you to maximize your rewards. Still, the earning potential of a rewards credit card is typically negated if you carry a revolving balance from month to month. This is because cards with a revolving balance accumulate interest, which you’ll have to pay off in addition to paying off your existing purchases.
Over time, using a credit card to spend above your means can result in a mountain of debt that is difficult to climb out from under. While many people understandably turn to credit cards when times are tight, we recommend paying off your entire balance each month whenever possible. If you avoid carrying a revolving balance, you can take advantage of credit card rewards and benefits without paying unnecessary interest.
7. Read the fine print
Some issuers have particular rules regarding how some retailers are coded and whether or not they fit a bonus spending category. For example, even though you can buy groceries at Walmart or Target, many credit cards won’t reward you for grocery purchases at superstore locations.
Some issuers, such as Chase, can add extra value to your rewards points when you redeem them a certain way. Depending on the card, Chase offers boosted redemption values for points redeemed in its Ultimate Rewards portal.
Finally, some cards have difficult processes for redeeming rewards or even limits on how much cash back or points you can accumulate at once. You should also pay attention to what kind of redemption offers the most value: Cash back, statement credits, gift cards and travel accommodations will have different redemption values based on the card issuer’s rules. In either case, knowing how to convert your spending into rewards is important, and an easy-to-understand and flexible redemption structure can go a long way.
The bottom line
Credit cards can be a great tool to earn rewards on purchases as long as you use them responsibly and don’t borrow more than you can afford. In addition to earning points, cash back or miles, rewards credit cards also come with plenty of additional perks and card benefits. While the world of rewards credit cards can seem intimidating, knowing how to maximize credit card rewards in different ways can help you get the most out of your credit card spending.