A reward credit card, otherwise known as a loyalty credit card, is one of many types of credit cards where the owner earns some incentives in form of redeemable reward points or cash back. The reward points and benefits will continue accumulating as more charges are applied on your card. In other words, the more you spend using the card the more reward points you get. Popular reward cards are those offering cash back or frequent flier miles on the amount of purchase you make using your credit card.

Today, most credit card companies offer ‘very attractive and fantastic’ rewards just for the freedom of giving you their credit card. But, the type of reward credit card that you choose will go a long way in determining whether you will actually get the rewards or you will end up actually paying for the rewards. Some of the things to look out for include:

Understanding Reward Credit Cards

Reward Credit Cards’ Golden Rule

There is only one known golden rule when it comes to reward credit cards, regardless of whether it is cash back or an affinity type of credit card… you MUST pay the outstanding balance in full each month, there is no short cut. Failure to do so, the balance you leave behind will earn interest, which will negate all the benefits you get from the credit card. What this means is that the credit card will end up costing you more in terms of interest than the rewards you will earn.

Annual Fees

For a reward credit card, your level of spending will determine the amount of rewards that you will earn. So, one important consideration to make should be the annual fee, as most of the reward credit cards will come with an annual fee, which is determined by the ‘reward’ level you are in. People who tend to use credit cards to make frequent purchases will reap maximum rewards off of reward credit cards. When estimating your future reward level, factor in the annual fee, the amount of money you need to spend every month in order to get a reward bonus and the kind of reward schemes on offer.

With that being said, choosing the right reward credit card could be one of the hardest things you will ever do, as making the decision could be a daunting one. Other types of credit cards are easy to choose, whether you go for an introductory 0% purchase rate credit card, a balance transfer credit card, etc. Considering the fact that you must pay the balance in full every month for a reward credit card, you need to calculate the annual fee chargeable and then know your spending habits so you can calculate the estimated rewards you stand to gain, for you to be able to make an informed decision.