Today, many credit cards feature some sort of rewards program. Most rewards credit cards use a point system for keeping track of accrued benefits, at a rate of 1-2 points per dollar charged. Other programs take a percentage of the entire dollar amount that the card user spends, and allocates that amount into a reward program bank of sorts. Whether points or cash, most rewards can only be redeemed for discounts, services, or at participating stores--not actual cash. And most rewards benefits expire if not used within a certain timeframe, usually after a year.
Credit cards with rewards programs are only beneficial when the cardholder pays the balance each month. The most generous reward credit cards returns roughly 5% of what the cardholder spends. But if the APR of the credit card is 14%, and if the cardholder rotates a balance for longer than a month, it quickly negates any benefits or gains. To make things more dangerous, rewards credit cards tend to have higher APRs. If not used properly, rewards credit cards could be harmful to one's finances and credit score.
A rewards credit card is right for you if: pay your monthly balance in full, use a particular service often, or are loyal to the retailers who participate in the card's rewards program. Otherwise, a cash back or low interest credit card may be more your style.
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