The credit card has its roots in the 1960s when Bank of America introduced its first credit card. Since then, general acceptance of the credit card has grown, with today’s average American owning 3.84 credit cards, according to Experian, one of the largest consumer credit reporting agencies in America.
With such a widespread acceptance of credit cards, credit card companies are always in a race to attract customers. Cashback credit cards are one of the most widely used allures used by credit card companies.
While widespread, many consumers do not quite understand how credit card cashback works, but this guide can help change that.
What is Cashback?
Cashback is just as the name suggests. It’s a reward offered by cashback credit card providers to their cardholders for every purchase or the purchase of select items. Rates for cashback varies with the provider and the type of bonuses, so you can compare companies for the best rates.
Cashback may seem negligible at face value. But it can add up to quite an amount in the long run. Also, some credit card companies offer attractive rates, meaning your cashback earnings can add up much more quickly.
How It Works
Different cashback credit cards work differently. So understanding how each rewards scheme works can help you choose the most suitable card for your needs. The most common reward schemes for credit cards include:
Flat Rate Cash Back Cards
Flat-rate cashback credit cards offer a flat rate regardless of where or how you use the card as long as you use your card to make a payment. Flat-rate credit cards are easy to understand, but the rewards may be relatively lower than category-based cards.
This program works best for people who want to spend a lot of time managing their credit card reward programs. All you have to know is the amount you have spent on your card multiplied by your cashback rate, and you have the figure of your earnings in cashback.
Bonus Category Cash Back
This cashback card allows special bonuses for specific purchases, usually at a higher rate than for flat-rate cards. Sometimes they will have a flat rate for qualifying purchases or a different rate based on the type of purchase.
For example, a card can have a 3% rate for all payments for dining and a 2% rate for fueling, or vice versa. Credit card users with this card may also enjoy cashback for non-qualifying payments, but at a much lower rate.
Rotational Category Cash Back Cards
A rotating cashback rewards card has changing bonuses for every year quarter. Generally, the categories change every three months. So you may need to periodically check your card’s bonus category to be sure what rewards are available for you at any time.
Also, you may need to activate your card each quarter, which would mean missing out on the bonuses.
Other Bonuses
Mainstream cashback credit cards offer the three benefits listed above, but the bonuses are not limited to the three. Some surpass these bonuses to attract even more customers.
For example, almost any credit card company you can think of charges an annual fee. But a select few, such as the SoFi cashback credit card, do not charge an annual fee.
Besides not paying annual fees, you can enjoy other bonuses limited to how much the credit company is willing to offer its customers. So, asking about all bonuses offered by a cashback credit card company before engaging them is a good idea.
Final Words
You can’t make money on cashback credit cards if you don’t use them, so take advantage of all their great features! It is also important to remember that credit cards do not offer free money.
Instead, they allow you to get a share of the proceeds of your transactions, which is, by all means, a good deal compared to not getting anything.