This type of credit card provides a reward in the form of cashback or travel miles for every dollar spent within a set limit. Depending on the type of card, the cardholder can use the rewards in various ways.
How it Works
Credit card rewards represent a more significant part of the credit card in the market, and they are favorable for most applicants. The card has a different reward structure, and there are different terms on how the rewards are redeemed and what items the reward can be used.
The rewards can be redeemed for gift cards, checks, travel perks, or a statement credit. At the end of the billing cycle, the cardholder can see their reward balance on their credit card statement.
Most card issuers provide introductory bonus rewards to encourage the individuals to sign up. The offers might include hundreds of dollars in incentives when the user reaches a set spending threshold, plus a 0% introductory APR for a specific time.
How to Compare Rewards Credit Cards
If you decide to apply for a reward credit card, there are features you should consider:
Annual fees: Not all rewards cards have an annual fee; however, most lucrative cards have an annual fee. Weigh the annual fees cost against the reward value you expect to get before signing up. Some annual fees have high-end card charges; if you are a big spender, then this will be the best suit.
Interest rate: Most rewards cards provide a 0% APR for the first year to attract people to sign up. After the first year, unless the cardholder is planning to pay their balance in full every month, you will be charged an interest rate.
Cashback: Most credit cards that offer cashback rewards set a limit on how much you can earn on their common spending categories. For instance, a card issuer pays a 3% cashback on $1,500 spent.
Is the Reward Credit Card Taxable?
Currently, the IRS does not consider card rewards as taxable, and the value does not need to be claimed on tax forms. The reason for this is, the rewards are earnings from after-tax spending on credit cards, and they are incentives from the card issuers.
Is the Credit Card Reward Important?
Rewards earned for credit cards are worth the effort; however, they are most essential for the cardholder who pays their balance full every month. The interest rates charged are you carry the balance to the next month might wipe out the benefits from the rewards that might have been earned during a purchase. For cardholders who do not pay off their balance in full each month, hold their daily spending to earn points with every purchase to utilize towards gift cards, travels, or merchandise. Another factor to determine if a card reward is worth it is the amount of the annual fee. A most reward credit card does not have an annual fee, but those reward cards with annual fees, it’s essential to know the reward value earned over the year to find out if the fees are justified or not. For high spenders, the rewards can be favorable, however, for low spenders, it can still be worth it, but a no-annual-fee reward credit card is a better fit.