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5 Tips to Compare Rewards Credit Cards

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By Eva Norlyk Smith, Ph.D.
July 7, 2010

There are so many rewards credit cards on the market nowadays that choosing the best offer can seem outright daunting. To help you find the best deal, here are 5 tips to compare rewards credit card offers.

1. Determine the true value of rewards earnings. With rewards credit cards, it can be difficult to compare apples to apples. The amount of rewards points earned differs from card issuer to card issuer, and so does the value of the rewards points earned.

The best way to compare the value of rewards earnings is to convert rewards points to their cash back value. The baseline rewards earnings for cash back credit cards is 1 percent cash back per dollar spent. Rewards cards that convert to a higher cash back percent offer the better deals, and vice versa.

For example, 8000 Citibank Thank You rewards points earned on Citi cards such as the Citi Forward Card can be cashed in for a $50 cash back check. However, since the standard points earnings is one point per dollar charged, that translates into a value of less than 1 percent, or .06 percent to be precise. (Certain charges like travel-related purchases and restaurant charges earn higher points, resulting in a higher redemption value for cardholders who frequently make such charges.)

Another example: the Capital One VentureOne rewards card offers 1.25 miles earnings per dollar charged. Miles can be cashed in for free flights, hotel stays, car rentals, or cash back at a straight 1:1 ratio, meaning that one point equals one cent. In short, miles earnings of 8,000 would translate into a $80 cash back statement credit (or alternately, $80 towards a free flight). So, rewards earnings on this card translate into a 1.25 percent cash back value.

It may take a bit of study of rewards card terms under consideration to find the true cash back value of rewards earnings, but it will be well worth your while.

2. Watch out for tiered or capped rewards earnings. Some rewards cards advertise earnings ‘as high as&#039, which typically means that the high level of rewards earnings don&#039t kick in until you&#039ve reached a certain level of charges.

For example, the Discover More cards offer an attractive-sounding cash back benefits of 5 percent on rotating purchase categories and 1 percent in other categories. However, according to the fine print, that 1 percent cash back does not kick in until the cardholder has accumulated $3,000 in charges each year; before that the earnings are only 0.25 percent. In addition, the 5 percent cash back bonus earnings are capped, in some cases at as little as $300 in purchases.

3. Avoid cards with temporary higher rewards earnings. Some rewards credit cards advertise higher-than-average rewards earnings, which expire after the first three to twelve months. Ignore the temporary higher rewards and use the permanent rewards earnings as a basis for comparing cards.

4. Look under the hood. Like cars, most rewards credit cards look the same on the surface, however, buried in the fine print can be surprising differences. Look for traps like point expiration dates and penalty clauses that allow issuers to cancel rewards earnings if you make one or two late payments.

5. Check several rewards card categories. Many rewards credit cards these days are cross-over cards, which offer a wide range of rewards options. Most travel rewards cards, for example, now also offer cash back redemption options at very attractive rates. In short, if you&#039re looking to apply for a cash back credit card, it may be worthwhile to also look at travel rewards cards. Similarly, if you&#039re looking for an airline miles credit card, it can be useful to also check out the hotel rewards credit cards, many of which let cardholders redeem rewards earnings for free flights at reasonable rates as well.