Cash back credit cards are a reward that credit card companies create to attract and incentivize new customers. Have you ever been curious about how do cash back credit cards work? Understanding these cards’ principles can assist you in reaping the benefits of receiving as many rewards as possible. Hanfincal will demonstrate what it is and how it operates. Stay here and explore.
1. What is cash back?
When you buy something, you get a percentage of the cost refunded. This means that cash back is a way to earn money back on purchases – it is like a discount or incentive. Cash back credit cards reimburse a percentage of your spending (similar to a rebate). For purchases, the typical rate is between 1 and 2%.
Although a few pennies back on a dollar may not seem like much, cash back rewards can quickly add up, especially with an everyday spending card. When you earn cash back rewards, they are saved on your credit card account until you decide to redeem them.
2. How does cash back work on credit cards?
2.1. A flat rate on all purchases
A flat-rate cash back credit card may provide a flat cash back rate of 1.5% or more on all purchases. While 1% was once the most common cash back rate, 1.5 % has now become the new standard for flat-rate cards.
It’s simple to use flat-rate rewards cards, but the rewards percentage may be lower than what you’d get with a category-specific card. These cards are ideal for customers looking for a simple cash back program that requires little effort in exchange for big rewards.
2.2. Bonus cash back in rotating categories
Cash back percentages on rotating category cards are higher on certain types of purchases. These purchase categories rotate every quarter, and cardholders must first activate their rotating bonus categories to earn rewards.
With a bit of upkeep, it is possible to earn a cash back rate of up to 5% on common spending categories. The $0-annual-fee Discover it Cash Back is an example, and it offers 5% back in rotating quarterly categories with $1,500 in purchases with activation each quarter and 1% back on everything else.
Your credit card company may provide all of the bonus categories for the year in advance, or they may only release them at the beginning of each new quarter. To earn the bonus rate for that quarter, you will usually need to activate those categories with the card issuer.
2.3. Cash back in customized spending categories
You’ll typically get a higher rate in a few specific categories and 1% cash back on general purchases. Instead of having a fixed category or keeping track of rotating bonus categories, you can choose your bonus category from options.
- Citi Custom CashSM Card: With an automatically optimized rewards system, the Citi Custom CashSM Card eliminates the need for manual selection. Each billing cycle, you’ll earn 5% cash back (up to $500 per billing cycle, then 1%) on your top spending category. Ten categories eligible for 5% cash back as below:
- gas stations,
- select travel,
- grocery stores,
- select transit,
- select streaming services,
- home improvement stores,
- live entertainment,
- fitness clubs.
- Bank of America Customized Cash Rewards: This credit card has a $0 annual fee and offers 3% back on your category from a list of six options, as well as 2% back on grocery stores for the first $2,500 in combined bonus category/grocery store/wholesale club spending per quarter. When you reach that threshold, you will receive 1% back. Purchases made outside of these categories also earn 1% back. The spending categories are:
- online shopping,
- home improvement and furnishings.
2.4. Elevated rewards in common everyday categories
Other cash back credit cards may offer higher rewards in specific categories, such as gas, dining, streaming services, groceries, and a base rewards rate of 1%. Some cards may also impose a spending limit on the maximum amount of cash back you can earn in the highest-earning category.
3. Ways to redeem cash back
Cash back cards typically have only a few redemption options. Several cards allow you to redeem cash back in any amount, while others have a minimum amount, usually $25. Here are some methods for redeeming cash back.
- Statement credit: Apply your cash back to your current credit card balance. Unless you don’t use your card often and have more cash back than your current balance, this is usually the simplest option.
- Gift cards: Some allow you to redeem your cash back rewards for gift cards to your favorite stores and brands.
- Bank account deposit: Put your money back into a bank account linked to your credit card.
- Check: You can receive a check via mail for your money back.
4. What credit score do you need for a cash back credit card?
Rewards credit cards offer numerous benefits, but you must have a credit score of 670 or higher to be eligible for them. The closer your score is to 850, the larger the welcome bonus, the higher the cash back rewards rate, and the more cardholder perks you can get.
People with bad credit still have several options, such as secured cards that offer cash back rewards. However, they may charge higher fees, offer lower rewards rates, and provide fewer cardholder benefits.
5. How to maximize cash back rewards?
Here are some outstanding ways to maximize your credit card rewards:
- Use the appropriate card: There is no such thing as a one-size-fits-all credit card. Your best is to look for a rewards program that corresponds to your spending habits. And, if you use the right card at the right time, you can maximize your rewards. Furthermore, if your creditworthiness improves and you can qualify for more cards, you should periodically reevaluate your decision.
- Earn your sign-up bonus: Most rewards credit cards offer a welcome bonus after you open an account, which can help you get a head start on earning rewards. Bonuses on rewards cards are typically worth more than $150, and some cards even offer the chance to earn up to $750.
- Read terms and conditions: Some cards have complicated redemption processes or limits on the amount of cash back you can accumulate at once. You should also consider which type of redemption provides the most value: The redemption values for cash back, gift cards, statement credits, and travel accommodations will vary depending on the card issuer’s rules.
- Examine the limited-time offers: Pay close attention to the offer window time for each reward card, as each has its own peak time with the most offers available. Don’t pass up this opportunity to earn more rewards.
- Remember your bonus categories: Remembering and recognizing your bonus categories can help you get the most out of your rewards, primarily if you use multiple cards. For example, if one of your cards earns 5% at department stores, but the others only earn 1%, don’t pass the higher return rate.
The information above will help you understand how cash back credit cards work. Anything unclearly after reading this article? Misunderstanding can keep you from reaping the benefits, so if you still have questions about this topic, please leave your email address and stay in touch with Hanfincal , and we are here to help you.
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