Are rewards credit cards actually as amazing as they’re made out to be? Should you be paying an annual fee to own one? Will they provide your credit rating super powers? Here’s an overview of all things benefits-card connected, in order for you to determine if they’re right for your situation
Rewards cards rack up perks, but…
Ok, your new rewards card might earn you enough miles to take a nice tropical vacation once a year, but how much money exactly are you actually spending to get that free ticket? Are you racking up charges on your card just to get the points? If that’s the case, those points are costing you debt you wouldn’t generally take on. Not really bright. However, if you’re planning to purchase something anyhow, also it happens to enable you to get a few rewards points in your charge card, then you’re doing pretty good!
Keep in mind that the proportion of dollar spent to reward point earned will constantly tip within the charge card business’s favor. A great guideline would be to just charge what you’d have billed otherwise, regardless of the rewards points.
Beware annual fees
Yet another way rewards cards can set you back is when they charge you an annual fee for the “privilege” of using their card. Personally, I loathe charge cards that are piggybacked with an annual fee. Mainly because there are so many great rewards cards out there with no fee.. Some individuals see as a status symbol elite rewards cards that carry massive annual fees. I say let them have their stature. I’d rather keep my money in the bank than have a shiny 18k gold plated card that everyone ooohs and ahhh’s about when it’s pulled from your billfold. There are loads of rewards cards out there which don’t charge annual fees; find one of those. The Discover it card is a highly rated rewards card with no annual fee and some great benefits, which you may want to check into. Apply for a Discover it® Now!
In case you don’t qualify…
In the case that you do not have the credit rating to qualify for a benefits card without annual fees, concentrate on boosting your credit rating or perhaps sign up for a guaranteed card meanwhile.
Note that a number of people with lesser credit ratings might manage to get a reward card, however they will most likely pay higher interest rates, which may offset some of the benefits they receive from the rewards. You’ll need to determine if the benefits are worth this higher rate of interest (in many cases, the solution must be no). But if you’re one of these responsible type folks who pay off the whole balance every month, then the monthly interest rate is a non issue.
Use a benefits card to improve your credit score
As with other cards, rewards cards can increase help or completely ruin your credit score. Using credit cards responsibly will improve your credit rating and get you perks at the same time. Here are a few hints to get the most out of the rewards card:
- Check out the fine print. Understand the card’s APR, yearly fee (if any), along with the duration of the card’s grace period before applying which means you don’t get in to trouble afterwards.
- Do not submit multiple credit card applications at the same time. Only complete one application for a new card at any given time. Multiple credit applications in a brief period of time can damage your score.
- Do not charge items only to acquire the rewards points. This can get you in more debt than you are able to repay.
- Don’t pay a yearly fee for a benefits card. They’re not worth the money, and have no additional advantage to your own own credit rating.
- Do not max out your card. Your credit score will be hurt by a high utilization rate.
- Pay your bill on time every month. This is actually the best thing you could do with any credit card to keep your credit score moving in the right direction.
Pick the best card for you
When you’re ready to take the leap and submit an application for a rewards card, just make certain you pick one which has benefits you’ll really use. Listed below are the more popular rewards card features & options.
Cash-back cards: Some offer yearly cash rebates that equal some percent of the prior year’s purchases. The others not only offer cashback, but gas rewards, airline miles, along with additional perks.
Reward cards: All these are alike to cash back cards except you’ll receive “points” rather than dollars. Some cards offer points on each purchase you make; the more you spend on the card, the more points you get .Retailers and gas companies frequently offer rewards points cards. You can cash these points in for goods, flights etc. when you have earned enough.
Flight rewards credit cards: Airline miles cards are specifically beneficial if you are a frequent traveler. Airline cards aren’t great for individuals who maintain a balance from month to month, since the interest rates are usually high and you only get your miles when the balance is paid off. These cards offer a kind of points or air miles that can add up to free round trip tickets for card holders. Watch out for other limitations along with black-out dates for redeeming your miles, however.
What’s the card company get from this?
As an aside, maybe you are wondering how credit card companies manage to give these perks? When there isn’t any annual fee for a card, and you’re one of those rare people who pays down their balance in full every month, isn’t the charge card business losing money? No, actually.
Charge card companies make money a number of different modes; yearly fees and interest are just 2 of their earnings streams. Charge card companies also charge a percent of every trade towards the retailer attempting to sell you the service or merchandise. Therefore, even though you pay off your balance every month, your lender continues to earn from such retailer transaction fees.
A final note
Before you get too worked up about a rewards card, remember that you could see more “rewards” by not using a charge card whatsoever. Studies show that using cash as opposed to credit will probably lead to at the very least a 12% savings. For reasons unknown, we are far more reluctant to part with this cash than to whip out a charge card. So while a credit card that provides 1% cash straight back has its place for on-line buying as well as to help build a solid credit rating, using traditional paper money is likely better for the bottom line in the long run.