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Factors to Consider While Choosing a Money Back Credit Card

Nowadays, almost everyone owns a plastic card of luxury, also commonly known as the credit card. A swipe here and a swipe there is the easiest way to give out money, but many people forget to ask an interesting question – Can this money be received back? Obviously yes!

Pick the right money back credit card and put the high-end purchases to some good use by earning credit card rewards. Once the scale-up from no reward to many rewards is visible, enjoying their benefits amplifies a notch higher.

Before the rewards can be thoroughly enjoyed, let’s understand how these money back credit cards work?

Money back credit cards, also known as cashback credit cards, return a certain amount or percentage of the money spent back to the card holder’s account, something like a rebate.  Almost all credit card companies offer reward credit cards, in turn, increasing the types of reward credit cards that are available in the market. The 3 main types of money back credit cards are flat rate, fixed bonus, and rotating categories bonus. Here’s how they vary from each other:

Flat rate credit cards:

As the name suggests, this type of credit card offers a flat reward rate on all purchases. Subject to the bank providing the credit card, the rate ranges from 1 to 2 percent for every purchase. These types of credit cards work best for people who spend minimal amounts but also want a very simple and to-the-point rewards program. To better understand this, here is a brief example – a person owns flat rate money back credit card that pays back 1% of all expenses. If the person spends Rs. 100,000 on any commodity, he/she will receive a direct cashback of Rs. 10,000 in their account.

Fixed bonus credit cards:

If an individual has most of the expenses in a set of categories, then this type of credit card is the most suitable for them. These credit cards offer extra cashback on specific categories like travel, dining, etc. The number of bonus categories can vary from one to many on the basis of the credit card owned. The other categories are not left behind, a flat base rate of 1% typically applies to them. Make sure to pick this type of credit card once these high-expenditure categories have been identified, else it can be a real hassle.

Rotating bonus credit cards:

These types of cards are very complicated in nature because the categories with rewards keep altering every few months. Then the question arises, why are they still accepted by people? It is because the reward rates are as high as 3% to 5%, subject to the card offering bank. More so, it doesn’t restrict the card owner with a fixed set of categories and enables them to earn benefits from almost all of them. Some banks also give cardholders the choice to choose these categories.

But with the plethora of choices for money back credit card, how can one choose the ideal credit card that gives excellent value back for the purchases? Here are the 5 main factors to consider when choosing a money back credit card:

  • Credit score: Credit scores play a huge role in determining whether a credit card will be approved or not. A good credit score is indicative of the credit card holder’s repayment power, making it an important factor when choosing a money back credit card. A good credit score is considered to be 700 and above.
  • Spending pattern: It is crucial to understand one’s spending habits before jumping in to get a rewards credit card. The best way to figure this out is by diving deeper into the past month’s expenses with scrutiny. This not only lets a person gauge their chances of earning money back but also understanding which money back credit card suits them best. It can also help in understanding the best rewards rates that one should opt for.
  • Perfect credit card type: If the individual shopping is limited, then flat-rate rewards card works best for them. Whereas, if a person’s spendings are highly focused on one category, they should get a fixed bonus credit card. Lastly, in the case of erratic shopping patterns, rotating bonus credit cards work best!
  • One time cash bonus: Who doesn’t like to get a large sum of deposited into their account as a one-time bonus. Many money-back credit cards come with a one-time cash bonus to power-up the rewards in the short term. This, however, can only be earned if the individual can meet the required spending pattern. This is just icing, the main cake is the reward rates that are important in the long run. A rewards credit card without a bonus can still be the perfect one.
  • Annual fee: They aren’t very common with money back credit cards unless there is a worthwhile reward rate. Even though they are usually zero if a cash back card does have an annual fee, it should come with great benefits that can make up for the fee every year. Most people look at annual fees as a small reduction in the annual cash-back earned.

The best way to pick the right money back credit card is to forecast the returns over the span of three years by keeping these factors in mind. If a money back credit card fits all the bills, then the money back credit card fits all your needs.

Peter Christopher

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