Understanding Cash Back Credit Cards: A Comprehensive Guide

At O1ne Mortgage, we prioritize consumer credit and finance education. Our goal is to provide you with the best information to help you make informed decisions. If you have any mortgage service needs, feel free to call us at 213-732-3074. In this blog, we will delve into the world of cash back credit cards, explaining what they are, how to earn and redeem rewards, and how to maximize your benefits.

What Is a Cash Back Credit Card?

A cash back credit card is a type of rewards card that allows you to earn cash on your purchases. Unlike travel rewards cards, the value of your rewards with a cash back card is straightforward. For instance, if your card offers 2% cash back, you earn $2 for every $100 spent. This simplicity makes cash back cards an attractive option for many consumers.

All cash back credit cards let you redeem your rewards for cash, often through a check, statement credit, or bank transfer. While some travel cards also offer cash back options, they might provide less value compared to using the rewards for travel.

How to Earn Cash Back Rewards With Your Credit Card

Cash back rewards cards can be categorized based on their rewards system:

Flat-Rate Cards

Flat-rate cash back cards offer the same amount of cash back on every purchase, typically 1.5% or 2%. These cards are ideal for those who prefer a straightforward rewards system without the need to manage different categories. However, it’s essential to check for any annual fees or other charges that might offset the rewards.

Bonus Categories or Tiered Rewards Cards

Some cash back cards offer different tiers of rewards based on where you use the card. For example, dining cards might offer bonus cash back on restaurant purchases, while gas cards provide extra rewards at gas stations. These cards can be beneficial if you spend a significant amount in specific categories. However, there might be limits on the bonus cash back you can earn each quarter or year.

Rotating Rewards Cards

Rotating cash back rewards cards have changing bonus categories, usually every three months. These cards can be appealing due to the high cash back rates (often 5%) in the limited-time categories. However, there are often caps on the amount of bonus rewards you can earn each quarter, and the issuer typically selects the categories.

How to Redeem Your Cash Back Rewards

You can redeem your cash back rewards in several ways, including:

• A check
• A statement credit
• Direct deposit into your bank account
• Gift cards

Some cards also offer additional options, such as using your rewards to book travel, donate to charity, or make online purchases. However, be aware that some cash back cards may have minimum balance requirements for redeeming your rewards.

What Credit Score Do You Need for a Cash Back Credit Card?

Many cash back cards require at least a fair to good credit score, with the best options often reserved for those with very good or excellent credit. These cards typically offer large introductory bonuses, high cash back rates, and additional perks. For those with poor credit, secured cards with cash back rewards are available, though they may come with higher fees and lower rewards rates.

How to Maximize Cash Back Rewards

To get the most out of your cash back rewards, consider the following tips:

Choose the Right Card

Review your average spending and decide how much time you want to spend managing your card. Select a cash back card that aligns with your spending habits and occasionally reevaluate your choice as your creditworthiness improves.

Remember Your Cards’ Bonus Categories

If you have a tiered or rotating rewards card, keep track of which card to use for each purchase. You can use notes on your phone or stickers on the cards to remember their bonus categories.

Sign Up for Extra Earning Opportunities

Look out for limited-time offers to earn bonus cash back. These opportunities can significantly boost your rewards.

Review the Terms

Read the credit card agreement to understand what purchases qualify for cash back. For example, you might not earn rewards on gift card or lottery ticket purchases.

If you can choose between cash back and other redemption options, compare them to see which offers the best value.

Get Matched With Cash Back Cards

If you’re unsure which cash back card to choose, consider using a card comparison tool. These tools can provide personalized offers based on your credit profile and preferences, allowing you to compare several cards side-by-side.

At O1ne Mortgage, we are committed to helping you make the best financial decisions. For any mortgage service needs, call us at 213-732-3074. We are here to assist you in achieving your financial goals.