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Compare cash-back credit card types | What kind of credit card user are you? | Common cash-back credit cards features |
Best practices when comparing cash-back rewards cards | Compare offers

If you don’t have a cash-back rewards credit card, and you have friends or family members brag about the perks and stuff they’ve bought with the rewards they’ve earned, you may be left feeling like there’s a secret club out there for credit card rewards cardholders that everyone belongs to but you.

That isn’t the case, naturally. You’re simply feeling a little left out, and you could probably use a quick tutorial on how to compare cash-back rewards cards. So if you’d like some clarity, take a deep breath, and let’s explore the world of cash-back rewards credit cards.

Compare cash-back credit card types

Broadly, there are three different kinds of cash back-rewards credit cards. Three doesn’t sound like all that much, but considering how confusing it can get for some consumers, it’s plenty. Plus, there are a couple of hybrids out there that don’t fit cleanly into any of these three categories. The first thing to compare when it comes to cash-back credit cards is what type of card you want. For instance, you could get one that focuses on:

Flat rate. This one is easy to understand. A flat-rate cash-back rewards card offers a set percentage of cash back on every purchase. So if you see a credit card that promises, say, 1.5 percent cash back on all purchases (a pretty typical amount for flat-rate cash-back cards), and you spend, say, $10,000 in a year, you’d receive $150 back. One-and-a-half percent may not sound like a lot, but if you’re going to spend this money anyway, why not? Plus, it may be more than you think: $150 is currently a little better than what you would get if you put $10,000 in a typical savings account.

On the other hand, you may be more excited by a cash-back rewards credit card that offers…

Tiered rates. These credit cards offer differing percentages back depending on where you shop. Often, they include spending caps in a particular category.

So, you’re probably thinking now, “In English, please?”

Sure thing. These cash-back rewards credit cards give you cash back on your purchases, but you might receive 2-3% cash back for groceries and 1% on everything else. These cards are usually pretty straighforward as the bonus categories don’t rotate. Let’s consider the CardName. This credit card offers 5% on travel purchases through Chase Ultimate Rewards®, 3% on dining at restaurants and on drugstore purchases, and 1.5% back on all other purchases. If you spend heavily at restaurants and drugstores, this could be a good option to add to your wallet. Plus, it earns 1.5% back on all “other” purchases, which is an elevated offering of many cards’ normal 1% in this category.

Rotating categories. OK, now we’re getting into the trickier territory, and when your friends or family talked about this, that’s where you probably think, “Oh, geez. I think I’m going to learn about something less complicated, like biophysics.”

Let’s un-complicate this, shall we?

So a cash-back rewards card with rotating categories is essentially a tiered rate card on steroids. Generally, you’ll always at least get 1 percent cash back on all of your purchases. That said, you’ll have one other spending category that changes regularly that gives you more cash back – perhaps as much as 5 percent. So maybe you have a credit card offering you 1 percent cash back on all purchases and 5 percent on all your restaurant purchases from January through March.

But pay attention. Because every quarter the bonus category changes. Maybe for three months, it’s restaurants where you get 5 percent back, and then the next three months, it’s gas purchases that give you 5 percent back, and the next three months, it’s groceries, and then the next three months, maybe it’s travel-related expenses like hotels and airplanes or all of your purchases on and wholesale clubs. And to top it all off, something to pay attention to, if you’re using your credit card a lot, there are usually caps on the amounts you can spend in the bonus categories.

For instance, CardNamediscontinued is among the most famous of these rotating categories cash-back cards. It offers 5% back on the first $1,500 you spend each quarter in the bonus categories and 1% on your other purchases. One other thing to note: you have to “activate” the 5% category earning each quarter. If you don’t, you’ll just earn 1% even on the bonus purchases. (Information related to Chase Freedom FlexSM has been collected independently by CardRatings and was neither reviewed nor provided by the card issuer)

Customer-choice rewards. One last type you’ll want to think about as you compare cash-back rewards cards is the somewhat unusual hybrid in which a tiered card meets a rotating categories card and throws in some customization options for each cardholder. A good example of this type of card is the CardName with which you’ll earn 3 percent cash back in a category of your choosing; 2 percent back on your gas station and wholesale club purchases (up to $2,500 in combined choice category/grocery store/wholesale club quarterly purchases); and 1 percent on your other purchases. You can change your 3 percent category once each calendar month.

Now that you understand the types of cards, the next step in comparing cash-back credit cards is thinking through what kind of credit card user you are.

What kind of credit card user are you?

This shouldn’t be hard for you to figure out. But, by and large, it helps to think of a few factors.

Your credit score. Do you know it? Is it high, is it ridiculously low or does it fall somewhere in the average/fair range. Generally, credit cards with rewards are only offered to people with high credit scores, and that tends to be when your score is somewhere in the 700 and above range.

What your monthly budget is like. Why is this important? Well, if you spend a fortune on groceries but you never eat out, you don’t want to get a rewards credit card that gives you cash back on restaurants. It’d be better to go for the card that gives you the most back on groceries. If you spend a lot everywhere that may give you a good argument to apply for a rewards credit card with rotating categories or one of the customer-choice options.

Do you truly spend in categories that will earn you the most rewards? This is sort of the second part of the point above. You want to look at your actual spending habits, not the habits you swear you’ll develop once you have the card. If you never cook at home, you probably aren’t going to suddenly start doing so just to earn peak rewards with your new credit card. Don’t make the mistake of thinking your spending habits will magically change once you get a card; instead, do the research required to make sure the card fits into the spending habits you already have.

Are you going to use the card enough to offset an annual fee? While there are a number of solid cash-back rewards cards that don’t charge an annual fee, several with top rewards do. Sometimes in that first year, the credit card company waives it, but time flies when you’re having fun using your credit card, and Year Two will eventually get here. If the annual fee is, say, $95 (that’s a pretty standard fee for cash-back cards that are going to charge one), are you likely to get enough cash back to pay for that $95? For instance, let’s look at the CardName, which charges an annual fee of AnnualFees but offers 4 percent cash back on your dining and entertainment purchases, 2 percent on your grocery store purchases and 1 percent on everything else. If you spend $10,000 a year on 1 percent earning purchases, you’ll earn $100 cash back, so even though you’re not really making money with this card, you did manage to offset the annual fee.

But, since you applied for a cash-back card that offers top-of-the-line cash back on your dining out and entertainment purchases, let’s assume you spend that $10,000 on dining out and entertainment each year. Four percent of $10,000 is $400, which means this card is bringing in some serious dough and the annual fee is absolutely worth it. The point is to make sure that you know what you’re spending and where so that you can more than offset that fee.

Do you want one card for all purchases, or are you willing to use your cards strategically and rotate more than one card? This is both an easy and hard question. If you’re of the mindset that, “Geez, I don’t want to be thinking every three months, what’s the new category I get more cash back in? I just want something simple and to just always get a decent amount of cash back,” then you probably want one card. If you enjoy being on the hunt for deals, and you’re the sort of person who often clips and downloads coupons and think of yourself as a pretty organized person – and your credit score is stellar or pretty close to it – then you’re a good candidate for having one or two or more cash-back rewards credit cards so you can use them strategically to earn the most rewards. But the main thing is, you know yourself and you should trust your gut.

Common cash-back credit cards features

If you are someone who really loves the thrill of the chase when it comes to saving money, you’ll want to keep the perks that come with these rewards cards in mind. Now, none of these are reasons to get a certain credit card. You always want to first think about the actual rewards, your spending habits and your ability (of course) to pay everything off every month (the moment you start carrying revolving debt, you erase the savings you’re getting from the cash back). But these amenities can be a nice addition to a card, and if you’re on the fence between choosing a couple credit cards, some of these offerings may end up helping you come to a decision on which one to apply for.

So here are some of the perks you’ll find as you begin comparing cash-back credit cards.

Purchase protection. If one of your purchases is damaged or stolen, or it doesn’t work properly, and you now have buyer’s remorse, you may be able to get a refund. But read the fine print because there are always little details that may bum you out later. For instance, some cards will require you to have made the purchase within 100 miles of your home (this is why you don’t want to just say, “Well, heck, this card has purchase protection, and I don’t need to know any more – sign me up!”).

Extended warranty protection. So you buy something, and it breaks, and you’d like it replaced. Many products offer manufacturer’s warranties will do that for you within a few months or a year’s time, if you have the receipt, whether you make the purchase with a credit card or not. But if you have a credit card, and especially if it’s a rewards credit card, your purchases may come with extended warranty protection. That is, beyond that first year of protection, you may be protected for another year or two or even five, depending on the card and a lot of fine print. For instance, you may pay several hundred bucks for a refurbished phone, and it breaks. But because it was refurbished, it won’t be covered. Those are the sort of exclusions that you could run into with a credit card with extended warranty protection. To get that extension and product fixed or replaced, you’ll also need to furnish a lot of paperwork, everything from the original receipt (which is peachy, if you keep receipts for years) to possibly a copy of the manufacturer’s warranty. But, again, some people are really good at being organized, and if you’re one of them, you may be pretty psyched by the thought of someday using this perk.

Automatic reward redemption. A lot of credit cards make you go to their website, where you have to click on a button that may say something like, “Redeem rewards.” It isn’t hard, and a lot of consumers presumably like deciding when to take their rewards and having that control. Other consumers, maybe not so much. (Fortunately, usually, as long as your credit card is in good standing, and you haven’t missed payments and all, your rewards points shouldn’t expire. So there is that.) Anyway, some credit cards offer the option of automatically redeeming your rewards for you into a linked account. So if you’re somebody who really just wants to apply for the card, get your cash back and not have to think much about the credit card you’re using, this is a seriously nice perk.

Minimum amount of rewards needed to redeem. This is something to think about, but don’t think about it for very long. Some credit cards require you to accumulate a certain number of points/cash back before you redeem your rewards. Maybe, for instance, you need to have $30 in cash back accumulated before you can get it. Well, obviously, it’s better if you can redeem your cash the moment you get it, so if you have $1 in cash, you can grab it rather than waiting until it reaches $30. Some critics also complain that if you want to stop using the card and close down the account when you’ve reached, say, $15, you’re not able to get that $30, or you’ll have to hang onto the card for longer than you want and spend money to get the rest of that $30. True. But it hardly seems like a reason to get, or not get, a credit card.

That said, if you’re looking at a credit card that offers miles that you can redeem for airline travel, and you need to spend a minimum of thousands of dollars before collecting those miles, then, yes, look at the “minimum amount of rewards needed to redeem” clause a little more carefully. But even there, if you are looking at a travel rewards card and you aren’t planning on spending a lot of money to get those miles, why are you looking at that card?

No foreign transaction fees. Definitely look out for this. Many travel rewards cards understandably don’t charge foreign transaction fees, but it is a more common fee among cash-back cards. A foreign transaction fee means that when you travel abroad, you may be charged a small percent (often 1 to 5 percent) every time you make a purchase. So if you spent $8,000 on a European trip, and your credit card has a foreign transaction fee of 3 percent, you’ll actually spend $8,240. Funny, but consumers don’t really like that, and credit card companies have figured that out. So if the card you’re thinking of getting doesn’t have a foreign transaction fee, that’s another reason to consider it.

Usability. If a credit card is more usable than another, then that’s another reason to consider it. For instance, Mastercard and Visa are more widely accepted than American Express or Discover, especially if you’re wanting to use them while abroad. That isn’t a reason to not get American Express or Discover, both of which have a lot of loyal customers who love their rewards and perks. But it just means that you really want to understand your spending habits before you apply for any credit card.

Is it chip and PIN ready? Probably; all credit cards these days are moving to chip technology that requires you to insert your card into the machine rather than swipe it as in the days of old. PIN technology, however, has been a bit slower to come in the United States. Outside of America, where consumers have for years used credit cards that are chip and PIN ready, some American travelers have reported running into problems using their credit cards since they have no PIN (or at least don’t know what it is since they don’t really ever use it in the U.S.). It’s just something to think about and be aware of if you know you’ll be using your card overseas.

Budgeting tools and account reminders. Some credit cards offer budgeting tools and account reminders. That is, they’ll offer alerts that remind you when you need to make a payment or if you’re reaching a certain limit of spending that you don’t want to go beyond. If the credit card you’re eyeing has alerts like that, or any tools to help you budget, all the more reason to consider it.

Free FICO scores. Many credit cards – even those without cash back and rewards – offer free FICO scores. (There are a lot of credit scores out there, but FICO is the one that is used the most.) It’s always helpful to know what your credit score is, and in the past, credit bureaus seemed to go out of their way to make it hard for consumers to know what their credit score was. They arguably still make it hard, but credit cards are increasingly trying to make it easier for consumers to know their score. If the credit card you’re considering offers you regular, free access to your FICO score, that’s yet another reason to consider applying for it.

Best practices when comparing cash-back credit cards

OK, so you’ve looked at everything. You’ve thought about your spending habits and whether you’re right for a flat rate rewards credit card, or one with a tiered rate, or the rotating categories. You’ve analyzed the perks. You’re just about ready. But let’s go over a few quick items you definitely want to keep in mind. Consider this your “last minute check list” before actually applying for anything.

How quickly can you earn the welcome bonus? Just about any rewards credit card worth its salt has a welcome bonus. It’s designed to be enticing to get you to apply, and you should pay attention to them. On one hand, time passes, and before you know it, the welcome bonus period of your card’s life is a distant memory. So you don’t want to get too starry-eyed by whatever they’re offering you and certainly consider the ongoing rewards structure. Generally, these welcome bonuses will give you, say, a ton of points for spending a certain amount of money in three months. Or you’ll get a certain amount of money – maybe $150 – if you spend $3,000 in three months. They’re often good deals, and sometimes wonderful deals, so make sure that you know that you can hit whatever goals they’re asking you to in order to earn the rewards you’re going for. It would be a real bummer if you did all of this work comparing credit cards, applied, and somehow didn’t manage to get your welcome bonus.

Consider whether your spending habits align with the rewards offered by the card. We’ve talked about this a lot, but it’s so important that it bears repeating: Make sure your spending habits are a good fit with the rewards the card offers and don’t be lured in by a flashy welcome bonus only to find the card isn’t a good fit for you on an ongoing basis.

Do you spend MORE in a given category than the spending cap will reward? Because if you typically do, maybe you should look for an even better credit card – that is, one that has no spending cap or a bigger one. This is most often an issue with tiered rewards or rotating rewards cards that will offer you the highest amount of cash back only up to a certain amount spent in a given time period. If you routinely blow through that spending cap, consider adding a second card to your wallet that will allow you to earn more than the standard 1 percent back once you cap out the spending.

Can you offset the annual fee with the rewards you earn? We’ve mentioned that, too, but again, this is so important. Because if you’re going to spend a lot of time and effort comparing cash back rewards credit cards, and reading the fine print and creating a blueprint for saving a lot of money through your credit cards, then obviously, you want to save a lot of money. And if it turns out that you get a rewards credit card, but every year, you save $75 but spend $95 to pay an annual fee, you’re doing this wrong.

By Geoff Williams CardRatings Contributor |  updated on May 20, 2024