How Do Reward Credit Cards Work?

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Reward credit cards are just like any other credit card, except that they offer the chance to earn a little back from your spending.

The rewards available can be in the form of points, frequent flyer miles, discounts or even straight cash. There is a range of different rewards to choose from, and there is certainly something to please everyone.

The different reward options

- Cash back
The simplest form of credit card reward, cash back credit cards offer straight-up hard cash on all your spending.

Cash back is earned as a percentage of what you spend on the card, and depending upon the card issuer, the cash back will be paid into your card account or as a personal cheque monthly or yearly.

The actual percentage earned will differ from card to card, and some cash back credit cards work on a tiered level - either awarding the highest percentage for lower levels of spending, or awarding the highest percentage to high, accrued levels of spending.

- Air miles and travel rewards
Air miles or travel rewards are the best reward option for anyone who travels regularly and wants to save money off their travel costs.

Air mile credit cards generally work with a particular frequent flyer mile program - whether a general scheme like Air Miles or with a specific airline like British Airways - allowing you to earn air miles on all your spending.

Air mile credit cards are especially well suited to people who regularly fly on a particular airline – this is because you will often be able to earn double miles when you fly with the partnered airline, alongside airline specific extras such as VIP airport lounge access and priority check-ins.

Travel reward credit cards allow you to earn points on your spending which can be redeemed for a range of travel rewards from a number of different travel operators.

- Retail rewards
Retail reward credit cards come in two different types - including those that earn you points for free products or services and those that offer shopping discounts just for being a cardholder.

Retail reward credit cards can offer points that are earned on all of your spending - these points can then be redeemed for rewards including free CD's, money-off your broadband subscription or even savings on a new car.

Other retail reward credit cards simply offer exclusive cardholder discounts when you shop with selected retailers or companies.

- Charity donations
Charity credit cards are a type of reward credit card but instead of earning rewards for yourself, you'll be earning donations for a charity.

There are a number of different charities to choose from who are affiliated with a particular credit card.

Similarly to cash back cards, charity credit cards usually work on a percentage scheme, donating a percentage amount of your spending to the specified charity.

Charity credit cards will often donate a small sum of money when an account is opened too, and again each year the account remains open.

How to earn rewards

Rewards are earned by spending on a reward credit card - the more you spend, the more you will earn.

Rewards are only ever earned on purchase spending - that is paying for goods or services with your credit card. Rewards won't be earned on any balance transfers or cash withdrawals - so it's best not to use your reward credit card for these transactions.

Switching all your everyday purchases from your debit card to your reward credit card will dramatically increase your reward earning potential.

It's important not to go out and buy things you don't need just to earn yourself some points though.

- Earning extra rewards
Reward credit cards that work in partnership with a particular retailer or company, for example retail reward credit cards or flyer mile credit cards, will often award you with extra points or miles when you spend at their shops or buy travel from their company.

Try to choose a reward credit card that works with your current spending, rather than trying to change your spending to work with your reward credit card.

- Bonus rewards
A number of reward credit cards will offer joining incentives to new customers - offering a large number of bonus points or miles when you open the account or with your first card purchase.

These bonus points are often enough for your first reward and can really help kick start your earnings.

What's the catch?

You'd think with getting free rewards just for using your credit card that there would be some kind of catch - a way for the credit card companies to make it affordable to give you free stuff.

As a consumer, there is no catch that will come from your pocket.

However, credit card companies are there to make money, and all card issuer's charge retailers when you pay for goods or services with a credit card - this generated income is what covers the costs of any free rewards the card offers you.

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