Reward credit cards - What they offer and how they work

Reward credit cards explained

While credit cards can have numerous benefits such as protecting your online purchases, there are some specific cashback credit cards that actually incentivise you to use them in order to benefit from rewards points with your purchases.

In this guide, we’ll take you through everything you need to know about reward credit cards, how they work and how they can affect your credit rating.

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What is a reward credit card?

A reward credit card is essentially a credit card that rewards you with points, cashback or vouchers when you spend money on them.

How does a reward credit card work?

They work by spending money on the credit card and then you earn money on each pound you spend for example, and the credit card provider rewards you with loyalty points which you can then exchange for vouchers or cashback.

How does cashback work on credit cards?

With cashback on credit cards, you will literally be rewarded with cash when you spend money on your reward credit card. 

Most cashback credit cards pay out in the anniversary month of when you first took out your credit card and depending on the type of card you have, this will determine how much cashback you can earn.

For example, a card might offer 3% cashback on purchases, so let’s say you buy a new handbag with a value of £500, you could earn £15 back on that purchase. 

It’s important to remember that you’ll still be spending quite a bit of cash in the first place in order to benefit from the cashback reward, but this type of credit card can be useful to use for making regular purchases so that you can earn money back on the things you’d usually buy anyway.

What types of rewards can you get with a rewards credit card?

There are numerous types of reward credit cards available that all offer different rewards. Take a look at some of the most common types of reward credit cards below.

Cashback rewards

One of the most common types of rewards that you can get with a rewards credit card is cashback, like we mentioned above. This enables you to earn money on purchases that you make when using your cashback credit card.

You might like: The best cashback websites in the UK

Air miles

Air miles rewards are another popular type of reward system in which you can earn points with various airlines which you can then use towards future flights.

Supermarket reward cards

Supermarkets such as Sainsbury’s (Nectar Card) and Tesco (Clubcard) have their own reward systems in place that allow you to earn points on every purchase you make at their supermarket which you can then exchange for vouchers to go towards your shopping. 

Read more: A guide to supermarket loyalty schemes

Hotel rewards

Many hotel chains also have reward card systems, similar to airline miles, whereby you can earn points when you stay with them and you can use those points to book hotel rooms in the future.

How many reward cards can you have?

There’s no limit on how many reward cards you can have. While some people would argue that the more reward cards you have the better, it’s important to remember that they are still a credit card, so you will have to make regular payments towards your credit card bill.

Reward credit cards certainly do have many benefits, but they should still be treated with care and caution so that you don’t run the risk of getting into credit card debt and subsequently damaging your credit score.

How does a reward credit card affect my credit score?

As with any type of credit card or indeed any type of loan, when you apply for a credit card, a check will be performed on your credit report in order to see your credit score which will help lenders determine whether you’re eligible.

If the lender performs a hard check, then your credit score will likely be negatively impacted, but as long as you continue to make your credit card payments on time, your score should soon go back up again.

Alternatively, if you fail to make your payments on time and it happens frequently, then your credit score will also be negatively impacted.

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Advice for choosing the best rewards credit card

When it comes to choosing the best rewards credit card, it’s important to carry out plenty of research in order to determine which one is right for you.

While it’s a good idea to think about how many points you will earn with each pound you spend, you should also think about things like how much you’re likely to spend on the credit card each month, in order to see if it would even be worth getting one.

You should also carefully consider the type of rewards you want to obtain with your credit card, in order to decide which reward card to choose. For example, if you travel a lot, then an air miles or hotel rewards scheme credit card might be the best option for you.

Alternatively, you might spend a lot of your money at just one supermarket such as Tesco for example, so it might be worth looking into getting a supermarket-specific reward credit card.

Are reward credit cards worth it?

Reward credit cards can be worth it, depending on the type of card you go for. 

Cashback reward cards, also known as money back credit cards, can certainly be beneficial if you want to earn extra money on top of your regular purchases. However, you shouldn't just get a rewards card in order to earn money; remember that you have to spend money first in order to earn cash on top of your purchases, so you should only buy things that you’d normally buy.

If you’re considering getting a reward credit card, you need to weigh up the pros and cons and think about whether it would actually be beneficial for you to have one, or if it will just make you spend more money than you’d actually earn with things like cashback or vouchers.

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