Used irresponsibly, credit cards certainly can get you into a financial mess. However, using the right credit card in the right way could actually make you free money.
That’s because cashback and reward credit cards help you earn something back every time you spend.
Here, we’re going to explain exactly how these cards work, highlight the pitfalls to be aware of, and show you how to find the cashback or reward card that suits you.
How cashback and reward cards work
Cashback credit cards do what they say on the tin: they give you a certain percentage of cash back, every time you purchase an item.
For example, a card offering 1% cashback should give you £1 back when you buy something for £100.
Reward credit cards work in a slightly different way. They allow you to earn points, not cash. And these points can they be ‘spent’ on certain rewards, like petrol, groceries or flights.
Which is right for you?
Cashback credit cards are generally the more versatile choice, because the cash you earn can be spent anywhere.
In contrast, the points built up using a reward credit card can only be redeemed against certain items, or with certain retailers.
On the other hand, a reward credit card may be the better value option if you consistently shop with the associated retailer.
For example, certain reward cards will let you buy petrol with the points you earn, and may allow you to save more money than if you’d used a cashback card for the same purpose.
Need to know
Particularly when using cashback credit cards, there are several common caveats you need to be aware of:
- The best cashback deals often come with limited time offers. For example, a card may offer 3% cashback for the first three months, dropping to 1% cashback thereafter.
- Similarly, the top cashback rates may only be available up to a certain amount. For example, you may be offered 3% cashback, but only on the first £2,000 of spending.
- Certain cashback credit cards charge flat monthly fees. If the fees are substantial, it may prove very hard to earn enough cashback to offset them.
Not for everyone
Cashback and reward credit cards certainly aren’t for everyone. In fact, you’ll probably only be given one if you have a very good credit rating.
Repeated failed applications could further damage your credit score, so it’s important you find out what your rating is before you apply.
Several credit rating agencies will help you find out what your credit score is. And you can currently do it for free with Experian, with this 30 day free trial.
Finally, you need to be sure you can clear your balance every month.
If you don’t, you’ll probably end up paying far more in interest charges than you make in cashback!
Find the right card for you
Online comparison tables will help you hunt down the top cashback card currently on the market, or find a reward card that best suits your needs.
It’s a good idea to use a couple of different comparison sites, as each one tends to advertise slightly different deals.