For the right consumer, using a cash back credit card may be an effective way to maximize buying power. With a cash back credit card, the cardholder earns money back after using the card for qualifying purchases. If you're considering cash back credit card offers, or you're wondering how to pick a credit card, these tips can help you determine if a cash back credit card is right for you.
1. What is a cash back credit card?
A cash back credit card rewards the cardholder with cash when the cardholder uses the card to make qualifying purchases. The terms of cash back rewards programs vary, so if you're choosing a credit card program, check with the card issuer about terms and conditions before you apply. Not every cash back credit card works the same way, or offers the same rewards. Also, some transactions may not earn cash back. A balance transfer, for example, may not qualify as a cash back purchase. For more information about balance transfers, read How to Know When a Balance Transfer Could Be a Smart Move.
In general, as you make qualifying purchases with the credit card, the amount of cash back you earn accumulates. For example, with a 1% cash back program, a qualifying purchase of $1,000 gives you back a $10 reward. Continue making qualifying purchases and the amount of cash back you earn may continue to grow, provided you abide by the terms of the cardholder agreement. Read How Do Cash Back Credit Cards Work? for more information.
2. Is a cash back credit card right for me?
That depends on a wide variety of factors. In general, cardholders who use a credit card for most purchases, pay their bills in full every month, and pay lower interest rates earn the biggest benefits. But even if you don't meet these criteria, you may still find that a cash back credit card is a good choice for your wallet.
Honestly sizing up how you will use a card is a smart first step when considering any type of credit card. If you tend to carry a balance, consider if a low interest rate is important to you. If, on the other hand, you almost always pay your entire balance in full every month, then other factors might come into play. These may include benefits such as the percentage of cash back you can earn or the amount of the annual fee. Read Can the Right Cash Back or Rewards Credit Card Help You Save Money? for more information on choosing the right credit card.
Regardless of what card you decide to apply for, a healthy credit history will help you qualify for the best credit card offers. Attractive cash back deals sometimes include benefits such as low interest rates, or low or no annual fees.
3. How do I decide between cash back credit card offers?
The answer depends to a great extent on your lifestyle. Once you've carefully considered your repayment habits, think about how you spend your money. Questions to consider include:
- Does your payout vary depending on what you buy or where you shop? Consider if the places you earn cash back are the same places you typically spend money.
- Is there an annual limit on how much you can get back? Some cash back cards don't place a cap on your earnings. If the one you're considering does, you should know what it is before you apply.
- Does the card charge an annual fee? Before you apply, make sure you fully understand the terms and conditions of the credit card you're considering. If the card issuer charges an annual fee, will what you earn in cash back outweigh the fee?
- Can you lose your cash back, and if so, how? Again, read your terms and conditions. If you forfeit your cash back rewards for making a late payment – and you sometimes miss important deadlines – then you may want to reconsider applying for a cash back rewards card.
For the right cardholder, a cash back credit card can provide significant value. But before you apply, read the terms and conditions, and examine your spending and repayment habits. Strategic purchases, combined with responsible repayment practices, reap the biggest cash back benefits.