5 types of credit card rewards explained: Which one is right for you? | Mint

Out of all the financing options available in the market, a credit card stands out due to the multiple rewards and benefits offered to cardholders. People mostly opt for credit cards for two reasons: it’s buy now pay later facility and reward.

What is a credit card reward?

A reward is a benefit provided by a card issuer for credit card transactions. It gives a cardholder an added advantage when making purchases through credit cards. Rewards mainly depend on transaction value and types of expenses. It can be utilised in multiple ways on the basis of the credit card reward program and your preferences.

If you are planning to get a credit card or already have one, it is essential to understand the different types of credit cards to maximise the benefits of it fully.

Types of credit card rewards

Reward points

Card issuers offer reward points to encourage credit card use. Cardholders get points on every transaction they make through credit cards. You can collect these points over time and redeem them later for rewards such as gift vouchers, coupons, merchandise, etc. Some issuers also offer the option of converting these reward points into cash, which is credited to your credit card account.

Speciality rewards

These rewards are specifically designed for certain uses or brands. The benefits of this reward depend on your lifestyle and preferences. It provides exclusive deals on specific brands and categories that align with your spending habits.

Air miles

It is a type of reward that is earned on travel expenses. Air miles can be earned on the basis of the type of card and the expenses made through them. You can redeem air miles to book flights.

Cashback

It is a percentage of money credited back to the cardholder’s credit card account after making the purchases. The percentage of money credited will depend on your card and the type of purchases made. Some cards provide cashback specifically for categories such as online shopping, dining, utilities, etc. It is convenient to get cashback and can be used to make credit card bill payments.

Welcome bonus

Some credit cards offer an incentive to new cardholders after meeting a certain spending requirement. The types of bonuses will differ from issuer to issuer. This is done to promote credit card usage among new users.

Which reward suits you?

The types of credit card rewards that are suitable for you will depend on factors such as your spending habits, redemption process, preferences, etc. If you spend a major portion of your income on a certain category, opt for a reward program that gives maximum benefits in that category.

Opt for credit cards that provide a simplified redemption process for rewards so you can easily access them. Cards with a complicated redemption process may lead to inconvenience and loss of rewards.

Some users may prefer cashback on their transactions, whereas others may prefer higher reward points for a particular category of products. Therefore, the most beneficial type of credit will differ from cardholder to cardholder.

In conclusion, credit card rewards may seem very attractive to many users; however, most people are tempted by these rewards and end up overspending. Frequent overspending can disturb your finances and make it difficult to pay your credit card bills. Never opt for a credit card by considering only the rewards. Make sure to check other factors such as the need for a credit card, the interest rate levied on it, other fees charged etc., before getting a credit card.

(Note: Using a credit card carries its own set of risks)