What is a cash back credit card?
A cash back credit card is a credit card that offers a cash back rewards program. These credit cards give a percentage of money spent back to the cardholder in the form of cash rewards. The percentage of cash back offered varies between different credit card companies, but anywhere between 1 to 2 percent is common.
How do cash back rewards programs typically work?
Generally the cash rewards can be redeemed in the form of a statement credit or as cash deposited directly into the cardholder’s bank account. Some companies also offer online shops where cardholders can choose to spend their cash rewards directly on items.
Cardholders will receive a percentage of cash back for every single purchase, which can add up in their account over a period of months or even years. You can choose to save your rewards points or to spend them right away.
Who should consider a cash back rewards card?
A cash back credit card is a great choice for first-time credit card users. The rewards system is extremely simple to navigate, so it’s ideal for someone who may not be familiar with how credit card reward programs work. It’s a lot easier than working with complicated point conversions that may be present in other rewards programs. A cash back rewards program also eliminates the stress of deciding what to spend your points on.
Although cash back rewards cards are great for first-time users, they’re also an excellent choice for people who have used credit cards for years. The simple, straightforward rewards system offers a lot more freedom than cards that offer other rewards, such as airline miles or gift cards for a store.
Long-time credit card users may feel like cash back credit cards are a breath of fresh air compared to cards with limited reward systems. They offer freedom of choice that other cards don’t.
What type of credit is typically required to be approved for a cash back card?
In order to be approved for a cash back credit card, requirements vary by company. A good rule of thumb is that when applying for a credit card you should have a detailed credit history, a reliable source of income and a credit score that is acceptable to the bank’s standards.
A detailed credit history typically entails having paid all your credit cards on time for two years or more. Loan payments for student loans and other sources can also be a factor. Banks want to see a reliable source of income so they know you’ll pay your credit card on time. Lastly, they want to see a good credit score because it’s the best indicator of whether or not you’ll pay your card on time. If you’ve kept an eye on your credit and paid your other cards on time for several years, there’s a good chance you’ll keep up the habit with your new card too.
Do cash back cards typically have annual fees?
This depends entirely on the specific credit card and the company. Many cash back cards without annual fees are available if you want to avoid paying extra. However, cards with annual fees may be worth the extra money because they offer better rewards systems.
Cards with excellent rewards typically have a higher annual fee, but these may be a good choice for someone who plans on spending a lot anyway. If you spend a lot of money on credit cards and earn a lot of rewards, it’s important to consider the positives and negatives of an annual fee.
There are plenty of cash back cards with and without annual fees to meet your individual needs.
How can you save money with a cash rewards card?
It’s easy to save money everywhere you go with a cash rewards card. With many cash back credit cards, every single purchase gives you a percentage of cash back that you can redeem on your statement as a credit or transfer directly to your bank. No matter how small or large a purchase is, you’ll earn rewards on every single time. Every single trip to the grocery store or the mall becomes an opportunity to save money with a cash rewards card.
Also many credit card companies offer special deals with certain retailers where you can earn an extra percentage of cash back if you shop there within a certain time frame. There are plenty of extra opportunities to earn cash back if you’re smart about your shopping.
A good cash back rewards card is basically the equivalent of having a 2% off coupon for every single retailer you visit. Percentage back will vary by card of course.
When presented with a cash back credit card offer, what should you consider?
There are many things you should consider when receiving a cash back credit card offer.
First, you should check the interest rate and make sure it’s something you’re comfortable with. Even if a card has the best cash back percentage you can imagine, it’s useless to you if the interest rate is too high. You should also see if there are annual fees and decide if you’re comfortable paying them.
Another thing to consider is whether or not the card offers balance transfers. This may be of interest if you plan on transferring your old balance to this new card at a lower rate.
It’s also important to consider what rewards you’ll receive for signing up with each particular card. Some cards have much higher rewards rates than others. Some cards also have better “rewards categories” which means you could get a special cash back bonus for spending your money at a certain retailer each month. If you intend on making the most of your cash back rewards and taking advantage of these promotions, make sure you do a lot of research on what each company has to offer.
If you received an offer in the mail or online for a card, make sure you carefully compare it with others in the same category. You might be able to find a better deal elsewhere. Other cards could offer lower interest, better rewards, a lower annual fee or a combination of any of these factors.
If you carry a balance, is a cash back card worth it?
A cash back credit card may not be the best choice for someone who is carrying a balance. Annual percentage rate of charge, or APR, is generally higher on credit cards that offer high cash back rewards. If you carry a balance and plan on getting a cash back card, you might be making a mistake because what you earn in rewards will be offset by higher interest.
Each person's financial situation is different, so it's important to consider all factors before making a decision.
How can I maximize my cash back rewards?
Aside from the typical 1 or 2 percent back that many companies offer, you can take advantage of special deals to earn even more cash back. It’s common for credit card companies to offer up to 5% back on certain purchases in special reward categories.
Many cards will offer monthly rewards categories that allow you to maximize your rewards. These can be viewed on the card’s website every month. Many companies will also send them to you in the mail so you can stay updated on their special deals for that month.
Different companies will offer different reward categories throughout the year. For example, one company may offer 5% back on gas while another is offering 5% at grocery stores. If you have very good credit you may even qualify for more than one card. Some people even like to alternate credit cards so they can take advantage of multiple cash back rewards programs at once and maximize their rewards.
Will I get a bonus for signing up for a card with cash back rewards?
Yes, many companies offer a substantial bonus for signing up for their credit card. It’s common for companies to offer between $100 and $200 dollars as a reward in the first few months of using your account. Typically you have to spend a certain amount of money within the first few months. Once you reach the required amount of spending, you’ll receive the bonus reward either as a statement credit or as money that can be deposited in your bank account.
Some companies may also offer special introductory deals such as no interest for a year on purchases and balance transfers. Many people shop around to find a card with the best introductory offers.
Why should I choose a cash back credit card over the cards with non-cash rewards programs?
When choosing a credit card it’s important to make an informed decision based on your lifestyle. For example while airline miles may be a great reward for someone who travels a lot, they aren’t the best reward for someone who is afraid of flying. A cash back credit card is a much more sensible option in this case.
Cards that offer other rewards such as airline miles, restaurant gift cards or countless other options may seem like a tempting choice. However they don’t have the freedom of a cash back rewards card. With cash back you could buy everything these other cards offer and more.
How can I apply for a cash back credit card?
Generally you can apply for a cash back credit card on a credit card company’s website. Many banks also offer credit cards. Signing up online is the quickest and easiest way but you can also apply through the mail if you’ve received an offer.
From time to time you may receive offers in the mail for cash back credit cards, especially if you have good credit. Sometimes you may even be pre-approved. You can follow up with these either online or by replying to the letter in the mail.
Can I get a better cash back credit card based on my credit score or other factors?
Yes, your credit score plays a big role in what kind of credit cards you’ll be eligible for. The best cash back credit cards are generally reserved for people with excellent credit scores. However you can still qualify for plenty of good cash back credit cards if your credit is good.
People with excellent credit may enjoy more rewards categories, higher percentage of rewards and more options in general than people with poor credit. Credit card companies are always aiming to reward high spenders with the best rewards.
What is APR and why is it important to find a card with low APR?
APR stands for annual percentage rate. This is the interest rate you’ll pay each year that your credit card balance carries over.
Finding a credit with a low APR means that you’ll pay less interest over the course of the year. It’s very important to pay attention to APR when applying for a new card. It could save you hundreds or even thousands of dollars in interest over time. If low interest is important to you, when shopping around for cards you should compare all your options and choose the one with the lowest APR in your range.
Why do cash back rewards cards have higher APR?
Cash back rewards cards typically have higher APR because of the excellent rewards they offer. High APR and high rewards tend to go hand in hand. If you’re interested in a card with lower APR, consider finding a card without extravagant rewards. Cards that offer less cash back rewards often have a lower APR rate. It’s important to weigh your options and select the card that is best for your individual preferences.
If I pay my cash back rewards credit card each month, will I accrue any interest?
If you pay the balance before your due date each month, no interest will accrue on your card. It's important to pay close attention to the due date on your statements if you want to avoid interest and late fees.
Do I get to keep my rewards indefinitely? What if I want to save them for several years?
While most companies allow you to rack up points in your account for a long time, it’s a good idea to check the policy of your individual credit card company. Some companies may have policies that limit you from storing your rewards for years on end. To avoid losing hundreds or even thousands of dollars of rewards points that you saved up for years, it’s a good idea to spend them at least semi-regularly. Check your credit card agreement to see if your rewards will expire after a certain amount of time.
What happens to my reward points if I miss a payment?
As a rule of thumb you should always try to avoid missing a payment no matter what. Some credit cards won’t allow you to earn points for that month if you miss a payment, so all your careful spending will be for nothing. The only way to know for sure is to check your credit card company’s policy on late payments.
It’s unusual for companies to deduct points you’ve already earned in previous months as punishment for missing a payment, but they may lock down your rewards or penalize you in other ways. Again, the only way to know for sure is to check with your credit card company.
Can I get a cash back rewards credit card if I have poor credit?
It can be difficult to get a cash back rewards card with poor credit. Many people with poor credit have to obtain a secured credit card, and these rarely have many perks. Consider building up your credit using a secured card for a while if your credit score is low. Before long you’ll be able to take advantage of all the excellent cash back credit card deals.
Can I pay my credit card bill with cash back rewards alone?
It may be tempting to let cash back rewards build up in your account for a long time so you can pay off your bill for the entire month using only rewards. If you have enough rewards in your account you can choose to do this. However, depending on your spending habits it may take a long time to build up enough cash back rewards to pay off your entire statement.
As discussed previously, if you don’t want to wait to build up enough in cash back rewards to pay your entire statement, you can always withdraw the money each month in smaller increments.
Are there limits to how much I can earn in rewards per month?
Yes, some credit cards have limits to the amount of cash back rewards you can earn per month. It’s common for companies to put caps on rewards, especially with some of the special rewards categories that give a higher percentage of cash back.
For example, a credit card may offer a reward category of 5% back on groceries, but only up to $5,000. Any amount you spend past $5,000 would earn the normal reward rate of 2%.
Some credit cards have no monthly limit on rewards, but these cards typically have an annual fee. They also may require excellent credit in order to be approved.
Are there other benefits to cash back rewards credit cards besides the obvious financial incentives?
Even with the reward programs aside, cash back reward credit cards can benefit you for a number of reasons. Many people enjoy the freedom of being able to purchase what they want without carrying cash. Instead of carrying a bulky wallet full of paper bills around, you can simply stick the thin, convenient card in your pocket.
For larger purchases, cash back rewards credit cards are an excellent choice because you don’t have to worry about counting bills, carrying money or giving someone the wrong amount.
Many people find it much easier to use credit cards rather than checks to pay rent and utilities as well. Paying with a card saves time and effort. Instead of writing out a check you simply swipe the card and go on your way.
Do I have to report cash back rewards on my income taxes?
Generally cash back rewards are not seen as income in the eyes of the IRS. They’re considered a discount instead. Therefore with most cards you don’t have to report cash back rewards on your income taxes.
However in some cases you may need to report cash back rewards. It depends entirely on your credit card company’s policies. Because of large sign-on bonuses offered by some companies, more credit card providers are reporting rewards to the IRS. Therefore, it’s always a good idea to check with your credit card company about rewards before filing your income taxes. This information may also be present in your card agreement.
If you do have to report your rewards to the IRS, you’ll have to use form 1099 MISC.
Are cash back rewards a good choice for small businesses?
Yes, cash back rewards cards are an excellent choice for small businesses. They allow your employees to earn rewards while conducting company business. Every purchase your employees make earns a percentage of cash back, which could be withdrawn into your company’s bank account. It’s essentially giving you a discount on all business expenses if you look at it that way.
Some companies even offer special rewards programs designed specifically to maximize rewards for small businesses. They also offer special features like expense tracking to make it easier for small businesses to keep track of employee spending. Small businesses may even be able to enroll in a credit card plan that offers lower interest.
Are my rewards transferable? Can I share them with friends or family members?
Generally cash back rewards are non-transferable. If you want to share them with your friends or family you will need to withdraw them and distribute the money. Credit card companies normally don’t allow you to transfer your points to a different account.
Can my family member use my cash back rewards card to make purchases?
Only the cardholder and authorized users can use your cash back rewards credit card. To add an authorized user you have to fill out a form either on your credit card company’s website or through the mail.
Only the cardholder can add an authorized user. Some credit card companies only allow family members to be added to the account and will not allow you to add friends.
Why do companies offer cash back rewards? How does it benefit them?
Credit card companies are always aiming to please their customers and offer the best rewards programs. There are countless credit cards for consumers to choose from, which means there is a lot of competition. Credit card companies are finding that consumers prefer the freedom of cash back rewards to stringent rewards policies that limit them to one category, such as airline miles.
Credit card companies are offering cash back rewards now more than ever because they’re finding that’s what consumers want.
What if my cash back rewards credit card is lost or stolen?
If your cash back rewards credit card is lost or stolen, contact your credit card by phone immediately. Your card will be cancelled and you will be issued a new one with a different number and security code. You will not be held accountable for any fraudulent purchases made on your card. They will be removed from your statement.
Is it a good idea to have more than one cash back rewards credit card?
This is up to the individual person and their preferences. Some people prefer to conduct all their business on one card in order to stay organized. They may find it confusing or unnecessary to balance different cards for different purchases. Others don’t mind having multiple cards because they like to take advantage of the many different rewards programs offered by various companies.
Some people like to have different cash back rewards credit cards to take advantage of the different categories offered throughout the year. They may alternate using the cards in order to maximize their rewards.
If credit cards are paid on time and properly managed, there’s no harm in having multiple cash back cards.
Will applying for a cash back rewards card impact my credit score?
Applying for a cash back rewards card will cause an inquiry to show up on your credit score. One inquiry is rarely an issue. However, when multiple inquiries show up in a short amount of time, this can slightly lower your score. To avoid this, refrain from applying to too many different cards in a short time period.
It’s a good idea to stagger your credit card applications so credit card companies don’t consider your financial habits risky. You should only apply for credit cards you actually will use. Also, only apply to cards you think you have a good chance of getting accepted for.
Should I close my cash back rewards credit card if I’m not using it?
Many people think they should close unused credit cards to avoid identity theft. They’re surprised when they learn that it’s not a good idea to close credit cards, even if you aren’t using them. Closing an account early may have a negative effect on your credit score.
Closing your credit card account early has a chance of increasing credit utilization on your credit report. This can lower your credit score and may look bad to banks and credit card companies. Also, closing your credit card account early may make your credit history seem shorter to lenders.
Am I automatically enrolled in a cash back rewards program by signing up for a card or do I have to sign up manually?
This depends entirely on your credit card company. Some credit cards automatically enroll all cardholders in their cash back rewards program. Others require you to call their customer service team to sign up, or to fill out some forms online. If you’re unsure about your credit card company’s policies, it’s best to contact them directly.
If my card is lost or stolen will I lose my rewards?
Most companies will transfer your cash back rewards to a new card without issue. The same rules about fraudulent purchases generally apply to rewards points as well. If your card is stolen and someone spends your reward points without your permission, most companies will restore the damages and issue you a new card.
Where can I view my cash back balance on my credit cards?
Generally your cash back bonus can be viewed on your credit card company’s website along with your recent purchases. Most companies also include your cash back bonus on your credit card statement as well. Depending on the company, there also may be an option to call their customer service team and check your rewards balance this way.
Can I redeem my cash back rewards for something other than cash?
Some credit card companies have options to redeem your cash back rewards for goods and services as well as cash. However this depends on the company. If your credit card company does not offer anything besides cash back rewards, you will have to withdraw your cash back rewards to your bank account before exchanging them for goods or services.
What retailers will accept my cash back rewards credit card?
Most retailers accept major credit cards. If you're worried about a retailer not accepting your credit card, it's a good idea to call ahead before visiting the store to make sure you can use it.
While larger companies often accept major credit cards, small businesses may not be able to take them. Generally it's more likely to have trouble at a small business rather than a store owned by a large corporation.