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If you often pay for things with a credit card and pay off your balance in full each month, you may benefit from using a reward credit card.
Spending on one of these cards can net you cashback, or points that you can put towards everyday discounts. This article explains a bit more about how they work and highlights the best reward cards out there right now.
How do reward credit cards work?
When you buy things with a reward credit card, you build up either cashback or points that can be converted into rewards. Some providers will also boost your points or give you extra cashback if you refer a friend to them. The type of reward you get will depend on the card.
Cashback: Cashback works as its name suggests – for every pound spent on your credit card, you get a small percentage back. Check the card’s terms and conditions to see how and when this is paid to you. It may be on an annual basis, meaning you’ll have to really commit to the card to see the benefits. Cashback might also be capped, so you can only earn up to a certain amount, or more generous cashback might apply only in the first few months.
Points: If you choose a reward card which offers points rather than cashback, then you earn points for every pound spent. How these work will depend on the provider – they may automatically convert into vouchers that you can spend with certain retailers, they may be a type of points you are already familiar with (such as Sainsbury’s Nectar points or Tesco Clubcard points), or you might have the choice of how your points are converted.
To find out other ways to earn cashback and points when you shop, read our articles Cashback websites: how to earn money when you shop online and Shop loyalty schemes: What are your points worth?
Are reward credit cards risky?
The main risk involved with credit cards is that your debts end up spiralling out of control, so you need to be careful about how you manage your spending.
These cards tend to come with high interest rates, meaning that if you fall behind in paying off your card, the interest you owe could quickly start to outweigh the value of any rewards.
Only go for one of these cards if you are confident in your ability to repay what you owe each month, and consider setting up a direct debit to make sure the full balance is repaid. If your provider doesn’t have an option to repay in full when you set up the direct debit, call them up and see if they can arrange this for you. Otherwise, set yourself a monthly reminder to pay back the full amount directly.
As with any type of credit card, be sure to stay within the credit limit and avoid maxing it out. Again, any penalties you incur could end up being much greater than any rewards you get from the card.
If you have an important financial application coming up that involves a credit check – such as a mortgage or other type of loan – then it may not be the best time to apply for a reward credit card. Credit card applications tend to impact your credit score, so it may be in your best interest to wait until any applications are squared away before you start looking at reward cards.
Last of all, don’t withdraw cash on these cards, as this won’t generate any rewards and you’ll generally be charged a fee as well as interest (even if you pay it off). Stick to your debit card for cash withdrawals.
What are the best reward credit cards right now?
Here are some of the best reward cards available at the time of writing. Bear in mind that although American Express (or “Amex”) cards often provide competitive rewards, they tend not to be as widely accepted as Mastercard or Visa.
Top 5 Reward Credit Cards
Remember…
If you’ve applied for a credit card and had your application refused, don’t immediately start submitting applications to other providers. Each application will go on your credit file, and if you keep getting rejected, your score will suffer. If you’re worried your credit score might not be up to scratch, read our article Seven steps to improve your credit score for ways you might be able to improve it.
Most lenders have eligibility tools that let you see whether you are likely to be accepted for their card, without the need for a full credit check. Bear in mind that this does not guarantee you’ll be accepted for a particular deal, however.
Read more about credit cards and the different types in our Simple guide to credit cards. Or check out the best balance transfer credit cards in our article Balance transfer credit cards and personal loans compared.
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