When used wisely, rewards credit cards have serious earning potential. Unlike when you pay for purchases using a debit card or cash, when you use a rewards credit card, you can earn rewards in the form of points, miles or cash back. Rewards cards are a smart way to earn money on everyday spending, as long as you use them responsibly and don’t borrow more than you can afford.

Rewards credit cards: What you need to know

Wondering how to choose the right credit card? With so many cards to select from, it can be difficult to narrow down your options. Some cards offer incredibly lucrative rewards and perks, while others lag behind the competition. Different rewards cards may also be better suited to different borrowers, especially those who have a lot of spending in a particular category. The best rewards credit card for you, though, is one that has high earning potential, competitive rates and attractive perks.

Types of rewards credit cards

If you’re interested in a rewards credit card, there are several different types of cards you may want to consider, including cash back, points and miles. The best option for you depends on which cards you qualify for, the categories you spend the most in and your personal preference.

Cash back

Cash back credit cards are among the most popular rewards cards thanks to their straightforward earning structure and the overall appeal of earning “cash”. Most cash back cards earn a flat rate of 1 percent to 2 percent cash back on all purchases, and some cards have additional rewards categories that can earn 3 to 6 percent cash back. If you want a rewards credit card that earns a little extra when you spend but don’t want to think too much about spending categories and limits, a straightforward cash back credit card is an attractive option.

Points

Rewards credit cards that earn points aren’t quite as simple as the typical cash back credit card, but they can have high earning potential for savvy cardholders. When you make a purchase with this type of rewards card, you earn points on your purchase. Most cards offer 1 point per dollar spent on all purchases that fall outside of more specific categories like gas, groceries and travel. Points can be redeemed for gift cards, travel expenses, statement credits and more.

Miles

Credit cards that earn miles are another option worth considering for borrowers who travel frequently. These cards earn miles for every dollar spent, which can then be redeemed for airfare and other related expenses.

What to look for in a rewards credit card

There are a few features that you should keep an eye out for when choosing a rewards credit card, including:

• Few fees. In general, you should look for a rewards credit card that charges few fees, such as an annual fee, late payment fee, foreign transaction fees or an over-limit fee. If a card does charge a hefty annual fee, for example, you should be sure that the fee is justified when it comes to the earning potential of the card.
• Competitive rates. While it’s always recommended that you pay off your credit card balance monthly, if possible, some rewards cards offer low interest rates if you do end up carrying a balance.
• High earning potential. Since the point of a rewards credit card is to earn you rewards, you should look for a card with significant or high earning potential. The best card card for you, in terms of earning potential, depends on your spending patterns and rewards redemption preferences.
• Welcome bonus. Many rewards credit cards offer lucrative sign-up bonuses for new cardholders. Be sure to read the fine print to see how much you need to spend and what the term limit is in order to qualify.
• Intro APR. Rewards cards often feature low introductory APRs for a certain period of time after account opening. Depending on the card, this can apply to both purchases and balance transfers, making it a great way to potentially pay down debt or finance a big purchase without accumulating interest.
• Other perks and benefits. While rewards like cash back, points and miles often steal the show, many rewards cards also come with valuable perks like fraud protection, purchase protection, dining and rideshare credits and, if it’s a travel credit card, lounge access and TSA PreCheck or Global Entry credits.
• Ease of use. Ultimately, you want your rewards credit card to be easy to use. While some cardholders prefer tiered rewards systems and redemption options that allow them to maximize their rewards, other borrowers prefer a simple, straightforward rewards card with decent earning potential.

Bankrate