Consumers have different criteria when shopping for a credit card. Most of the credit card reviews focus on two characteristics of the card: The interest rate and fees. This is because statistics show that the majority of people who have credit cards do not pay off their balance in full each month.
For those who do pay their balance in full, the interest rate isn’t as important. For many, they look at the type of rewards that come with a card. That’s where cash back credit cards look more attractive.
Don’t be fooled. Cash back credit cards don’t necessarily mean that you will get a check in the mail. Some cards really are that simple but many package the rewards in various ways. At the end of the calendar year, you receive a check in the mail based on how much you charged to your card. Sometimes you receive a rebate based on a simple percentage while some card companies have a complicated formula for computing rewards so attempting to keep track during the year may be difficult.
You may remember when the Discover card came on to the market. At the time, MasterCard, Visa, and American Express were the big three credit card companies but when Discover was launched, they advertised a cash rebate. Because of this rebate, the card became popular among consumers.
Since the days of Discover, cash back cards have taken off in popularity and have evolved in to not just cash but many other choices. Those cash rewards may be converted in to airline miles, gas rewards, charitable donations, or investment products like 529 college funds.
Cards like these often require you to have good or excellent credit. There are a small amount of cards that cater to those with damaged credit but remember that those people must first rebuild their credit so the quality of the rewards should be further down their list of criteria. Low fees and interest rate should be towards the top.
Watch the fine print! With cash back credit cards and all rewards cards, you have to pay your bill on time. No breaking the rules allowed or you may pay a larger price than those without rewards cards. Why? Sometimes there is a clause in the fine print that states that if you pay late, a portion of your rewards are taken away. Sometimes that amount can be very large in addition to the late fee, sometimes as high as $40.
Don’t forget that if you are a consumer who normally carries a balance on your card, you should be more concerned with the interest rate. Carrying a balance almost always means that you are paying more interest than you are gaining with rewards so only consider cash back credit cards if the interest rate is comparable to other cards.
Finally, don’t let the allure of getting something for nothing affect your good financial sense. No amount of rewards points will be worth going in to debt much like a coupon to buy a name brand is often still more expensive as the equally tasty generic. Practice good financial discipline no matter what the credit card company offers you.
