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Rewards credit cards come with enticing benefits: You can earn cash back, points or miles that help you stretch your budget or go on a dream vacation. But there are some trade-offs. For example, they tend to carry higher APRs, which means you'll be paying more if you carry a balance. Some come with annual fees, too, so you have to make sure you’re getting more out of the cards than you’re paying.
Are credit card rewards worth it?
In short, yes. When you use a rewards credit card, you have the opportunity to earn cash back, points or miles every time you use your card. But just because they come with perks doesn't necessarily mean you should get a rewards card.
Do you have good to excellent credit?
Most rewards cards require good to excellent credit in order to qualify for them, which typically means a FICO score of at least 690.
If you don’t have good to excellent credit, you can build it up over time by paying your bills on time and keeping your credit utilization low. Then, when you can qualify for a rewards card, you can choose the best card for you.
“Most rewards cards require good to excellent credit in order to qualify for them.”
Not all rewards cards require excellent credit; the Capital One QuicksilverOne Cash Rewards Credit Card, for example, offers 1.5% cash back on purchases and is available to applicants with only average credit, aka fair credit (FICO scores of at least 630).
Do you pay off your balance each month?
If you pay off your balance each month, then there’s little downside to using a rewards card, even if comes with a higher APR. That’s because paying off the balance each month means you can avoid paying interest altogether. You get all of the upside of the rewards card without any downside.
What to look for in a rewards card
Not all rewards cards are created equally. If you've decided to get a rewards card, here are some questions to ask to help you pick the right one for you:
Do the rewards justify any annual fee?
Some rewards credit cards come with fees. The Chase Sapphire Preferred® Card, for example, comes with a $95 annual fee. Its sister card, the Chase Sapphire Reserve®, comes with an even larger fee of $550.
Annual fees are not necessarily a bad thing; they tend to signal that the card also comes with major benefits. In the case of the Chase Sapphire Reserve®, it comes with a huge sign-up bonus, generous ongoing rewards, and an annual travel credit, among many other benefits and perks. You just have to make sure you'll get more out of the card than you are paying in the annual fee.
Do the rewards come with caveats?
When it comes to rewards programs, the devil’s in the details — or, in this case, the terms and conditions. They might come with restrictions that can put a damper on your ability to earn or redeem cash back, points or miles. Be on the lookout for:
Annual or quarterly rewards caps: Some credit cards limit the amount of rewards you can earn in a quarter or year. For example, many of the rotating 5% cards cap your bonus earnings at $1,500 per quarter. That doesn't make them bad picks, it just means you'll want to keep track of your spending in those bonus categories to ensure you're maximizing the card.
Expiring rewards: Some credit card rewards may expire after, say, two to five years or sooner. Make sure you're able to redeem them before that happens.
Redemption thresholds: Unless you have a cash-back credit card, you’ll have to convert your rewards points into something useful, be it a gift card, a check or an airline ticket. A few rewards programs require you to accumulate a minimum number of rewards before you can redeem. These minimum redemption amounts may mean you'll have to spend thousands before you can realize any benefit.
If you know the answers to these questions and decide that you would benefit from a rewards card, the next step is choosing the right credit card for you, such as a travel or cash-back card. Soon you could be earning rewards that help you pay for your next vacation or big purchase.