Maximizing Your Spending: A Guide to Rewards Credit Cards

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Understanding Rewards Credit Cards

At O1ne Mortgage, we prioritize consumer credit and finance education. This post aims to provide an objective view to help you make the best decisions regarding rewards credit cards. For any mortgage service needs, call us at 213-732-3074.

What Is a Rewards Credit Card?

A rewards credit card offers you rewards when you use the card for purchases. These cards function like non-rewards credit cards, where transactions are added together at the end of each billing cycle. You can pay off the statement balance in full to avoid interest or pay less and revolve part of your balance, which will accrue interest.

Types of Credit Card Rewards

Rewards credit cards can be categorized into three basic types: cash back, points, and miles. Additionally, there are four common ways that card issuers structure a card’s rewards rates:

• Cash Back: Earn cash back rewards from your purchases, which can be redeemed for a statement credit, a check, or a direct deposit.
• Points: Points can be redeemed for travel, cash back, gift cards, or merchandise.
• Miles: Similar to points, but specific to airline loyalty programs.

Common Rewards Structures

Rewards cards often structure their programs in one of four ways:

• Flat-rate rewards: Earn the same amount of rewards on all purchases.
• Tiered rewards: Earn bonus rewards in specific categories like dining or travel.
• Rotating bonus rewards: Earn high bonus rewards in categories that change throughout the year.
• Dynamic bonus rewards: Choose and change categories throughout the year or have them adjust automatically based on spending.

Advantages of Credit Card Rewards

Rewards credit cards offer several benefits:

• Rewards on Everyday Purchases: Earn rewards on purchases you were going to make anyway.
• Intro Bonuses and Interest Rate Offers: Many cards offer an intro bonus and low or 0% introductory APR.
• Purchase-Related Benefits: Additional protections like travel insurance, return protection, and extended warranties.
• Additional Cardholder Benefits: Monthly or annual statement credits, free checked bags, and loyalty program status.

Disadvantages of Credit Card Rewards

Consider the cons before applying for a rewards credit card:

• High Interest Rates: Rewards cards may have higher APRs than non-rewards cards.
• Overspending: Earning rewards can justify unnecessary purchases, leading to debt.
• Credit Requirements: Top rewards cards often require good to excellent credit scores.
• Devaluations or Lost Rewards: Points and miles can devalue or expire unexpectedly.

Do Rewards Cards Build Credit?

Rewards credit cards can affect your credit scores like other credit cards. Paying your bill on time and maintaining a low credit utilization rate can help build credit. However, missing payments and high credit utilization can hurt your scores.

Should You Get a Rewards Credit Card?

Consider getting a rewards credit card if:

• You use the card for everyday purchases.
• You can pay off your bill in full each month.
• The benefits outweigh any annual fees.
• You understand the rewards program and redemption options.

What to Look for in a Rewards Credit Card

Compare options based on where you’ll use the card, your spending habits, and the types of rewards you want. Consider whether a higher rewards rate or extra benefits are worth any annual fees.

For more personalized advice and mortgage services, contact O1ne Mortgage at 213-732-3074. We’re here to help you make the best financial decisions.

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