There are many different types of reward programs, but in general, the more you use your credit card the more rewards you receive.

Types of Rewards

Rewards credit cards offer several different types of rewards.

You can accumulate reward points for your purchases. For example, you might receive 1 point for every $1 you charge on your credit card. Once you accumulate a certain number of points you can redeem the points for merchandise, services, or discounts on future purchases with your credit card.

Some reward credit cards offer cash back on your purchases. With cash back rewards, you earn a certain percentage of cash for each purchase you make. For example, you might earn .05% cash back for every $1 you make in purchases. Cash back rewards can be received as a check or a credit to your account.

With airline and hotel credit cards, you earn miles and points that can be redeemed for a free flight or a night’s stay at the hotel. The amount of miles you earn per flight and points you earn per hotel differ by airline and credit card issuer.

Which Type of Reward Credit Card is Best?

When it comes to reward credit cards, cash back is the most universal option. If you don’t travel much, airline or hotel rewards cash back is your best option.

If you’re a frequent traveler, look for a rewards credit card that’s co-branded with your most traveled airline. That way, you’ll earn the maximum rewards for your purchases. The same thing goes for hotels – choose a co-branded hotel card to earn the most rewards.

Reward Credit Card Watchouts

Rewards credit cards can lead you to accumulate more debt than you can handle by encouraging you to spend more money to earn more rewards. Some estimates show that credit card users charge double the amount on rewards credit cards than on regular credit cards. If you’re not careful you can end up with more debt than you can afford to repay in exchange for rewards that you may never use.

With a rewards credit card, just like any other credit card, you shouldn’t charge more than you can afford to repay. Use your credit card to purchase something you would have purchased anyway, not to purchase things you couldn’t afford if you didn’t have a credit card.

Pay your balance in full each month. Rewards credit cards often have high interest rates, so carrying a balance on one of these credit cards can be more expensive than other credit cards. You can afford hefty finance charges by paying your balance in full at the end of each month.

Rewards aren’t plentiful. In fact, many reward programs are set up to keep you from earning the maximum amount of rewards. For example, many reward credit cards have a cap on the amount of rewards you can receive.

For cash back reward credit cards, you may have a dollar limit on the rewards you can earn within a period of time, like $300 in one year. Similarly, on credit cards that let you earn points and miles, there will be a limit on the points you can earn within the year. Even if there’s not a limit on what you earn during a year, there may be a limit on what you can redeem in a year.

Rewards typically have an expiration date. If you don’t use your rewards within a certain period of time, they’ll be forfeited. Make sure you know whether your credit card has an expiration on your rewards. Use your rewards before they expire or your purchases will have been in vain.

Don’t sign up for rewards you won’t use. Rewards credit card often come with annual fees that make the card unattractive unless the rewards you redeem are greater than the annual fee. Don’t waste your money on rewards that will just accumulate and then expire. If you rarely buy books, the Barnes and Noble MasterCard isn’t for you.

Choosing a Rewards Credit Card

When you’re shopping for a new rewards credit card, all the regular shopping rules apply. For example, check the interest rate and fees before signing up for the card. There are some other reward specific questions you should know before you accept the credit card.

What are the rewards? Are you getting cash back or points. Not only do you want to know what rewards you’re getting, you should also know where you can use the rewards.

Are there any minimum spending limits? With some credit cards, you must make a certain amount of purchases before you ever start receiving rewards. With this type of reward program, you may not ever receive any rewards because you have to meet the minimum purchase threshold first.

When do the rewards expire? You don’t want to rewards to expire before you get a chance to use them. Look for a rewards credit card with a long expiration.

Is there a limit on the rewards? Unlimited rewards are ideal, but not common. If you see a rewards deal that seems too good to be true, look over all the other terms to make sure there’s not a catch.

Related posts:

1. Basic Credit Card Features Explained

Annual Percentage Rate (APR)

The annual percentage rate or APR is the yearly cost of borrowing money using your credit card. The annual percentage rate is also known as the interest rate for your credit card. These days, the average APR for credit cards is around 12.5%. The higher your interest rate, the more you pay when you carry a balance beyond the grace period (more on grace periods below).

Your credit card could have several APRs. One for purchases you make on your credit card, one for balance transfers, and one for cash advances. Read What You Need to Know About Interest Rates for more information about your annual percentage rate.

Grace Period

The grace period is the amount of time you have to pay off balances before you have to pay interest on your purchase. The grace period typically only applies to new purchases made with you begin the billing cycle with a zero balance. You may not receive a grace period for certain types of transactions like cash advances and balance transfers. Instead, interest begins accruing on those balances immediately.

Grace periods are typically between 20 and 25 days depending on your credit card. Ideally, you have a longer grace period, giving you more time to pay your balance without receiving a finance charge.

Finance Charge Calculation Method

Your finance charge is the amount you pay when you carry a credit card balance beyond the grace period. Finance charges are calculated based on your credit card balance and your interest rate using one of several methods.

1. average daily balance method
2. daily balance method
3. ending balance method
4. previous balance method
5. adjusted balance method
6. double billing cycle method

You can learn more about finance charges in the article How Finance Charges Are Calculated and How You Can Avoid Them.

Credit Limit

The credit limit is the maximum amount you can charge on your credit card without receiving a penalty. You may have a different credit limit for purchases and cash advances. The cash advance credit limit is usually lower than the credit limit for purchases. If you exceed your credit limit, your card issuer may charge a over-the-limit fee and raise your interest rate.

Another reason to stay below your credit limit is to protect your credit score. The closer your credit card balance gets to your credit limit, the lower your credit score falls.

Credit Card Fees

Credit cards come with lots of fees and card issuers are continually coming up with more fees. Some typical credit card fees include:

• Late fee is charged when you miss your credit card payment due date or you pay less than the minimum payment. Some credit cards have tiered fees based on your balance. For example, you may pay a $10 late fee if your balance is less than $500 and a $20 late fee is your balance is above $501.
• The annual fee is a yearly fee charged for using your credit card.
• An over-the-limit fee is charged when you exceed your credit limit.
• You will pay a cash advance fee when you make a cash advance with your credit card. The cash advance fee might be a certain percentage of your cash advance, or it could be a flat fee.
• Returned check fee is charged with the check you sent for your payment is returned by your bank. If your check is returned, you might also face a late payment fee and a penalty interest rate increase.

These are not the only fees charged by credit card companies. To find out which fees your credit card charges, refer to your credit card agreement.

Credit Card Rewards

Your credit card may offer rewards as an incentive for using your credit card. Rewards are typically awarded as cash back or points that can be redeemed for discounts, merchandise, or services.

Rewards can be received as frequent flier miles that can be redeemed for airline tickets. Some reward credit cards allow you to accumulate points for a free stay in a hotel. Other cards give a certain percentage of cash back for your purchases.

With reward credit cards, you must be careful about overcharging for the sole purpose of accumulating rewards. It’s also important to know how you accumulate rewards, when they expire, the maximum amount you can accumulate, and the number you need to redeem them. All these factors come into play when you’re using a rewards credit card.

Other Credit Card Benefits

Some credit cards come with other fringe benefits that may be free, but more typically are offered only with credit cards that have an annual fee. These benefits include travel insurance, purchase warranty insurance, and car rental insurance. These insurance benefits are usually only offered when the purchase is made on your credit card.

How to Find Out Credit Card Terms

Most credit card features are included in a disclosure box that’s sent with your credit card application or solicitation. For your existing credit card, information about most features will be included on the back of your credit card statement. Otherwise, refer to your credit card agreement for information about your credit card features.

Related posts:

1. How to Pick the Right Credit Card
2. How Finance Charges Are Calculated and How You Can Avoid Them
3. The 8 Most Important Credit Card Terms

Who Needs a Secured Credit Card?

You might need a secured credit card if you can’t get approved for a traditional credit card. This could be you if you’ve never had a credit card or if you have bad credit. A secured credit card is a good option because it gives you the chance to start building or rebuilding your credit history.

How to Choose a Secured Credit Card

When you’re looking at secured credit cards, you have to choose one the same way you’d choose any other credit card.

What are the fees?

It’s common for secured credit cards to come with additional fees. An application fee and an annual fee are the most typically types of fees. Look at several different secured credit cards and compare the fees between them. If there’s a credit card that has high fees compared to the others, stay away from it. You want as much of your security deposit to go toward your credit limit as possible.

How much of your deposit goes toward your credit limit?

Ideally, you want 100% of your deposit to go toward your credit limit. That means you get a $500 credit limit if you make a $500 deposit. Some credit cards give you as little as 50% of your deposit in available credit. Make sure you know upfront whether you’ll receive your full credit limit or something lower. It’s also worth asking whether your credit limit will increase as you make timely payments on your credit card balance.

How high is the interest rate?

The interest rate is an important factor for any credit card. It determines how much interest you pay when you carry a balance beyond the grace period. You won’t receive the most competitive interest rate on secured credit cards because there’s a certain level of risk associated with borrowers who have bad or no credit history. Still, your interest rate should be comparable to that of other secured credit cards.

Does the credit card issuer report to the credit bureaus?

The secured credit card is pointless if your card issuer doesn’t report your payment history to the credit bureaus. Before you accept a secured credit card confirm that the card will be included on your credit report. Also make sure the account entry won’t reveal that the card is a secured credit card.

Can the card be converted to a non-secured credit card?

Your card issuer may convert your credit card to a non-secured account after a certain number of timely payments. Anywhere between 12 to 24 months is typical for a credit card to be converted, if the card issuer has that service. Otherwise, you can try to apply for a non-secured credit card at another bank after 1-2 years of positive payment history.

Building or Rebuilding Your Credit With a Secured Credit Card

Think of a secured credit card as an opportunity to build a good credit score. Don’t think any less of it because you had to pay a deposit and certainly don’t let that affect your spending habits.

Use your secured credit card to make small purchases each month. Keep your purchases below 20% of your credit limit to show that you’re not taking on more credit card debt than you can handle. Charging only a small amount of your available credit will help build a good credit score.

Pay your balance in full at the end of the month. Not only does this keep you from accumulating more debt than you can repay, it also ensures your payments are on time each month. Your payment history has the most significant impact on your credit score, so take extra steps to make sure your payments reach your creditor on time.

Treat your secured credit card just like a regular credit card. Forget that you made a deposit against the credit limit. Otherwise, you can use that to justify missing your credit card payments. Not only will that hurt your chances at a good credit score, it also means you miss out on some or all of your security deposit. Think of the deposit as money you have in a savings account because ultimately you want to get the money back.

Secured Credit Card Scams

The Federal Trade Commission warns of secured credit card scams that only try to get money from you. Some of these scams convince you to call a 900 number to receive the card. Your phone bill will include a charge for the call and you won’t receive a credit card. A sure sign of a scam is a promise or guarantee or approval or an offer to repair your credit.

To avoid a scam, apply for a secured credit card from a reputable bank. Your bank is a good place to start.

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