3 Types of Rewards Cards to Consider

What kind of rewards card is right for you?

If you're applying for a credit card, you'll probably want to get a rewards card. Rewards cards do what their name suggests -- they reward you for using them. That means when you charge purchases, you benefit by getting whatever rewards the card issuer offers on things you would have bought anyway.

There are many kinds of rewards cards available to borrowers, though -- and you'll want to find the right one to meet your needs. Here are three kinds to consider so you can choose which is best for your situation.

1. Cash back cards

Cash back cards do exactly what they sound like -- they give you cash back for purchases. For example, a card may offer you 5% cash back at grocery stores and 1% cash back on other purchases.

Say you charge $1,000 a month at a grocery store and $1,500 per month on other purchases. In that case, the cash back card would give you:

• $50 for groceries ($1,000 x 5% = $50)
• $15 for the other purchase ($1,500 x 1% = $15)
• A total back of $65

In most cases, you can choose to have your cash back awarded as a statement credit, so it reduces the balance due on your card. Or you may also be able to request a check or have the money deposited into a bank or brokerage account.

Cash back cards are a great option if you don't want to be locked into using credit card rewards for specific things or if you simply want to make each purchase cheaper. They are the most versatile and flexible of rewards cards since you are literally getting back money you can do whatever you want with.

2. Travel rewards cards

Travel rewards cards are great for frequent jet-setters because they provide benefits that travelers will appreciate. They may be general purpose cards geared to travelers, or they might be offered by airlines or hotels.

Typically, travel rewards cards offer bonus points or miles for travel-related purchases such as airline tickets or hotel stays. If you've chosen a branded card, then you may need to fly on a particular airline or stay at a specific hotel to get the bonus rewards. And rewards can usually be redeemed for travel-related purchases as well, such as free flights or free nights at hotels.

These cards often come with great perks, such as:

• Airline lounge access
• Free companion tickets or checked bags
• Hotel upgrades or free nights

The best travel rewards cards may have hefty annual fees, but they could be worth paying due to these benefits. If you don't mind using your cards primarily for trip-related expenses, they could be the ideal choice.

3. Cards offering points

Finally, some rewards cards offer points that can be redeemed for merchandise. These are sometimes associated with particular stores. If they come from a specific company, then you'll usually get bonus rewards for shopping with that merchant and may be restricted to redeeming your rewards there.

These can provide less flexibility than other options, but they can still be a good choice if you're a loyal customer with a particular business.

The good news is, you don't have to pick just one type of rewards card. If one or more of these sounds attractive to you, you could consider several and use each for the purchases where you'll benefit the most.