How does a rewards credit card work?

A rewards credit card earns a set amount of rewards on every purchase. These increase your rewards balance, and you can redeem your rewards through your credit card issuer. For example, you have a card that earns 2 rewards points on every $1 you spend. If you make a $50 purchase, then you'd receive 100 points. You could redeem those points with any of the options your card issuer offers. This depends on the type of rewards card you have, but redemption options can include cash back, travel, and gift cards.

What types of rewards credit cards are there?

The main types of rewards credit cards are travel rewards cards, cash back cards, and store cards. Travel credit cards earn rewards that you can use for travel purchases. Cash back credit cards earn rewards you can redeem as cash. Store credit cards are tied to specific retailers and usually earn rewards you can turn into gift certificates.

How do I choose a rewards credit card?

To choose a rewards credit card, start by deciding whether you want to earn travel rewards, cash back rewards, or rewards with a specific store. Most consumers find that travel cards and cash back cards work for them better than store cards. Next, check out rewards cards and see how much they'd earn on your everyday purchases. The goal is to find a card that fits your spending habits. If groceries are one of your biggest monthly expenses, then a card with bonus grocery rewards would be just what you need. After you've selected cards that fit your spending, compare their other perks and their annual fees. That will help you figure out which card offers the most value for you.

Best Rewards Credit Cards of August 2021

With all the great offers available, a rewards credit card is practically a must-have. You could save money by earning cash back, travel rewards, or points with your favorite retailer on all your purchases. The tricky part is sorting through all those credit card offers to find the one that fits your lifestyle.

To make it easier, The Ascent's experts have reviewed hundreds of options and put together a list of the best rewards credit cards. Below, you'll find quality rewards cards for everyone, whether you're looking for a big introductory bonus, no annual fee, or extra rewards in a specific bonus category.

What is a rewards credit card?

A rewards credit card is one that earns rewards when you use it to pay for eligible purchases. The reward you earn depends on the card. One card may offer a rate of 1.5% cash back on every purchase. Another could offer 2 miles per $1 on all your spending. There are also rewards cards that offer higher rates in specific categories, such as 3% on grocery store purchases.

As you use your card, your reward balance will grow. If you spend $100 on a card offering 1.5% cash back, then the card issuer would add $1.50 to your rewards balance. You can redeem your rewards any time you meet the redemption minimum. Many of the best rewards credit cards also don't have a minimum, in which case you can redeem rewards at any time.

Types of rewards credit cards

There are three types of rewards cards: Travel rewards credit cards, cash back credit cards, and store credit cards.

Note that some top rewards cards technically fall into multiple categories, but there's still usually a single category that best describes each card. The Chase Sapphire Preferred® Card is a popular example. It earns points you can use for travel, cash back, or store gift cards. However, its points are most valuable when used for travel, and it earns bonus rewards on every travel purchase. For those reasons, it's considered a travel credit card.

Travel rewards credit cards

A travel credit card earns rewards you can redeem for travel. This can include airfare, hotel stays, vacation rentals, car rentals, cruises, and much more. Travel credit cards usually offer special travel perks and no foreign transaction fee. Most come with an annual fee, though.

There are a few different ways to use travel rewards depending on the card. Some cards let you redeem rewards at a fixed rate toward cash travel purchases.

Airline and hotel cards earn rewards in the provider's loyalty program. United Airlines cards earn miles in the United MileagePlus program, Hyatt cards earn points in the World of Hyatt program, and so on. With this type of travel rewards card, you can use your rewards for bookings through the loyalty program.

Certain cards in major credit card rewards programs offer transferable rewards. That means you can transfer your points to any partners in the card issuer's rewards program. Let's say you have the American Express® Gold Card. You could send rewards to the airline and hotel partners in the American Express Membership Rewards program.

Compare more picks: Check out The Ascent's best travel rewards cards

Cash back credit cards

A cash back credit card earns rewards in the form of cash back. There are a few different ways to redeem cash rewards.

Just about all cash back cards let you apply your rewards as a statement credit on your credit card account. If you have $100 in cash back, you could use it to reduce your credit card bill by $100. A word of warning -- credit card companies typically don't consider cash back a substitute for your minimum payment. If there's a balance on your cash back card, then you still need to pay at least the minimum amount.

Many cash back cards also let you deposit cash back into your bank account or request a check.

Compare more picks: Check out The Ascent's best cash back credit cards

Store credit cards

Store credit cards work a bit differently than travel cards and cash back cards. There are quite a few retailers that have their own store cards, and each retailer sets the rules with the cards it offers. This type of rewards card is only recommended if you spend a lot of money at the store in question. For most consumers, cash back cards are the better choice.

Most store cards earn rewards you can redeem for a gift card with that store. There are exceptions, though. Certain store cards also offer cash back, with the Costco Anywhere Visa® Card by Citi being one example. Some store cards offer a discount on every purchase instead of rewards.

There are two basic categories of store cards. Closed-loop store cards only work at that retailer and any other brands it has. Open-loop store cards can be used with other merchants. Some stores only offer one of the two, whereas others offer both options. When stores offer both, they generally approve customers with lower credit scores for closed-loop cards. Applicants with better credit can qualify for open-loop cards.

Here's an example of how this works. Let's say you apply for a credit card with T.J. Maxx. Any of the following could happen:

You could be approved for the TJX Rewards® Credit Card. This is a closed-loop card, meaning you could only use the card at T.J. Maxx and its other brands.
You could be approved for the TJX Rewards® Platinum Mastercard®. This is an open-loop card that can be used anywhere Mastercard is accepted.
T.J. Maxx could also, of course, deny the application.

TIP

How can I maximize my credit card rewards?

Use your rewards card for every purchase: If you don't, you're leaving money on the table. Always pay by card so you can earn rewards on all your spending.

Stick to your budget: A common mistake is making unnecessary purchases and using rewards to justify it. Don't let credit card rewards convince you to overspend.

Pay off your credit card every month: Credit card interest will cost more than any rewards you earn. Avoid this by always paying your entire statement balance.

What is the best credit card for rewards?

For the typical consumer, the best credit card for rewards is the Citi® Double Cash Card – 18 month BT offer. It can earn you 2% cash back on every purchase. Citi splits up this double cash back as 1% when you make a purchase, and then another 1% when you pay your bill on time.

Most consumers will get the greatest value from a card with a high rewards rate on every purchase. This Citi card's rate of 2% cash back is as good as it gets.

Keep in mind that this isn't the best rewards credit card for every cardholder. Your best rewards card could be one with bonus categories that fit your spending to a tee, or a travel card that helps cover expensive airfare for you. It's important to find the rewards card that matches your lifestyle and spending habits. That way, you'll be able to maximize your credit card rewards.

To learn more, check out our video on how to pick the best rewards credit card for you.

Should I get a rewards credit card?

You should get a rewards credit card if you have a good credit score and you plan to pay the bill in full every month.

Rewards cards are usually a great choice. If you use them correctly, they can save you a lot of money. There are only a couple situations when you shouldn't focus on getting a rewards card.

If you don't have a good credit score, you should work on that first. It usually takes a FICO® Score of at least 670 to be approved for any of the best rewards credit cards. By improving your credit, you'll be able to qualify for rewards cards that offer much more value.

A rewards card also isn't worth it if you won't pay in full. Every month that you carry a balance, the card issuer can charge you credit card interest. The cost of that will almost always outweigh your rewards.

Alternatives to rewards credit cards

Your financial situation may call for a different type of credit card. Here are a few alternatives to rewards credit cards that could be more useful for you:

0% into APR credit cards: Credit cards with a 0% intro APR on purchases. If you won't be able to pay your credit card bill in full for any reason, then 0% intro APR cards are the best option. They're especially helpful for financing big purchases. The credit card company won't charge you interest for the duration of the intro period.

Credit cards for bad credit: Credit cards that are open to applicants with a poor or limited credit history. While credit cards for bad credit tend to be light on benefits, they can help you improve your credit.

Balance transfer credit cards: Credit cards with a 0% intro APR on balance transfers. When high-interest debt is costing you money every month, balance transfer cards can come in handy. You can transfer your debt over and avoid interest for the length of the intro period.

Compare the best rewards credit cards

You have a lot of options when it comes to the best credit cards for rewards. Here are some of the top reward credit card offers we've seen lately:

The Picks
Card	Rating	Great For
Wells Fargo Active Cash℠ Card	Rating image, 5.00 out of 5 stars. 5.00 stars	Great For: Unlimited cash back
Chase Sapphire Preferred® Card	Rating image, 5.00 out of 5 stars. 5.00 stars	Great For: Travel sign up bonus
Chase Freedom Flex℠	Rating image, 5.00 out of 5 stars. 5.00 stars	Great For: Bonus cash back
Blue Cash Preferred® Card from American Express	Rating image, 5.00 out of 5 stars. 5.00 stars	Great For: U.S. gas and U.S. supermarkets
Citi Custom Cash℠ Card	Rating image, 5.00 out of 5 stars. 5.00 stars	Great For: Customizing your cash back
American Express® Gold Card	Rating image, 4.50 out of 5 stars. 4.50 stars	Great For: Dining and U.S. supermarkets
Bank of America® Travel Rewards credit card	Rating image, 5.00 out of 5 stars. 5.00 stars	Great For: Travel card with no annual fee
Capital One SavorOne Cash Rewards Credit Card	Rating image, 4.50 out of 5 stars. 4.50 stars	Great For: Dining rewards with no annual fee
Citi Premier® Card	Rating image, 4.50 out of 5 stars. 4.50 stars	Great For: Travel rewards
Discover it® Student Cash Back	Rating image, 5.00 out of 5 stars. 5.00 stars	Great For: Students
Discover it® Secured Credit Card	Rating image, 5.00 out of 5 stars. 5.00 stars	Great For: Bad/building credit

FAQs

A rewards credit card earns a set amount of rewards on every purchase. These increase your rewards balance, and you can redeem your rewards through your credit card issuer.
For example, you have a card that earns 2 rewards points on every $1 you spend. If you make a $50 purchase, then you'd receive 100 points. You could redeem those points with any of the options your card issuer offers. This depends on the type of rewards card you have, but redemption options can include cash back, travel, and gift cards.
The main types of rewards credit cards are travel rewards cards, cash back cards, and store cards.
Travel credit cards earn rewards that you can use for travel purchases. Cash back credit cards earn rewards you can redeem as cash. Store credit cards are tied to specific retailers and usually earn rewards you can turn into gift certificates.
To choose a rewards credit card, start by deciding whether you want to earn travel rewards, cash back rewards, or rewards with a specific store. Most consumers find that travel cards and cash back cards work for them better than store cards.
Next, check out rewards cards and see how much they'd earn on your everyday purchases. The goal is to find a card that fits your spending habits. If groceries are one of your biggest monthly expenses, then a card with bonus grocery rewards would be just what you need.
After you've selected cards that fit your spending, compare their other perks and their annual fees. That will help you figure out which card offers the most value for you.

Best Rewards Credit Cards for August 2021

The Ascent's best rewards credit cards: