Credit Cards

Why a Rewards Credit Card Might Not Be Right for You

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Since the end of the recession, millions of consumers have tried to get a toe back in the water when it comes to dealing with their credit cards, and the way in which many may choose to do so is through rewards accounts that incentivize their purchases.

Rewards credit cards can be extremely beneficial to borrowers because for every dollar they spend, the account will grant them a small amount of money back in the form of cash, airline miles or rewards points. But it’s important for consumers who are now seeking a rewards card of any kind to keep in mind that not all of these accounts are created equal.

In most cases, the way in which consumers receive offers for these cards is based on their credit score, and the better their score, the more beneficial the account will be for them. However, there are a number of things that borrowers will need to keep in mind when sifting through a number of offers for these accounts.

For instance, the most important difference between these cards and those that carry no frills is that they usually carry higher annual fees and interest rates, which will make the card more expensive than most borrowers are probably used to. Because of this, it’s important to examine your prior spending habits such as how much debt you tend to carry over from one month to the next, or how often you actually use your cards. Both of these factors can have an effect on the value of rewards points because they can cut into the total amount earned. If you’re not spending enough on your cards, you may not earn enough in rewards to balance the annual fee cost.

Along similar lines, it can be important to weigh the exact ways in which the offers will reward spending. Some cards now incentivize certain types of spending over others. The most popular these days grant two, three or even five times the rewards for spending on necessities like groceries or gasoline, and those who typically use their cards to buy these items might benefit the most from seeking accounts that reward them specifically. Similarly, those who fly often will want to find cards that reward credit card spending for travel arrangements.

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When reviewing any credit card offer, it’s important to weigh all aspects of the account, not just the interest rates or rewards points that an account may carry.

Image: masochismtango, via Flickr

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