There are three types of rewards cards: Travel rewards credit cards, cash back credit cards, and store credit cards.
Note that some top rewards cards technically fall into multiple categories, but there’s still usually a single category that best describes each card. The Chase Sapphire Preferred® Card is a popular example. It earns points you can use for travel, cash back, or store gift cards. However, its points are most valuable when used for travel, and it earns bonus rewards on every travel purchase. For those reasons, it’s considered a travel credit card.
Travel rewards credit cards
A travel credit card earns rewards you can redeem for travel. This can include airfare, hotel stays, vacation rentals, car rentals, cruises, and much more. Travel credit cards usually offer special travel perks and no foreign transaction fee. Most come with an annual fee, though.
There are a few different ways to use travel rewards depending on the card. Some cards let you redeem rewards at a fixed rate toward cash travel purchases.
Airline and hotel cards earn rewards in the provider’s loyalty program. United Airlines cards earn miles in the United MileagePlus program, Hyatt cards earn points in the World of Hyatt program, and so on. With this type of travel rewards card, you can use your rewards for bookings through the loyalty program.
Certain cards in major credit card rewards programs offer transferable rewards. That means you can transfer your points to any partners in the card issuer’s rewards program. Let’s say you have the American Express® Gold Card. You could send rewards to the airline and hotel partners in the American Express Membership Rewards program.
Compare more picks: Check out The Ascent’s best travel rewards cards
Cash back credit cards
A cash back credit card earns rewards in the form of cash back. There are a few different ways to redeem cash rewards.
Just about all cash back cards let you apply your rewards as a statement credit on your credit card account. If you have $100 in cash back, you could use it to reduce your credit card bill by $100. A word of warning — credit card companies typically don’t consider cash back a substitute for your minimum payment. If there’s a balance on your cash back card, then you still need to pay at least the minimum amount.
Many cash back cards also let you deposit cash back into your bank account or request a check.
Compare more picks: Check out The Ascent’s best cash back credit cards
Store credit cards
Store credit cards work a bit differently than travel cards and cash back cards. There are quite a few retailers that have their own store cards, and each retailer sets the rules with the cards it offers. This type of rewards card is only recommended if you spend a lot of money at the store in question. For most consumers, cash back cards are the better choice.
Most store cards earn rewards you can redeem for a gift card with that store. There are exceptions, though. Certain store cards also offer cash back, with the Costco Anywhere Visa® Card by Citi being one example. Some store cards offer a discount on every purchase instead of rewards.
There are two basic categories of store cards. Closed-loop store cards only work at that retailer and any other brands it has. Open-loop store cards can be used with other merchants. Some stores only offer one of the two, whereas others offer both options. When stores offer both, they generally approve customers with lower credit scores for closed-loop cards. Applicants with better credit can qualify for open-loop cards.
Here’s an example of how this works. Let’s say you apply for a credit card with T.J. Maxx. Any of the following could happen:
- You could be approved for the TJX Rewards® Credit Card. This is a closed-loop card, meaning you could only use the card at T.J. Maxx and its other brands.
- You could be approved for the TJX Rewards® Platinum Mastercard®. This is an open-loop card that can be used anywhere Mastercard is accepted.
- T.J. Maxx could also, of course, deny the application.
View more information: https://www.fool.com/the-ascent/credit-cards/best-rewards-credit-cards/