Cash Back with Credit: A Comprehensive Guide

Cash back with credit can be a great way to earn rewards on your purchases, but it's essential to understand how it works. Most credit cards offer cash back rewards, but the rates and terms vary greatly.

Some credit cards offer a flat rate of cash back on all purchases, such as 1.5% or 2%. Others offer higher rates on specific categories, like dining or gas stations. For example, the Discover it Cash Back card offers 5% cash back on various categories throughout the year, such as gas stations and grocery stores.

To maximize your cash back earnings, it's crucial to choose a credit card that aligns with your spending habits. If you frequently dine out, a card with high cash back rewards on dining would be a good fit.

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There are three main types of cash back structures: flat-rate, fixed categories, and rotating categories. Flat-rate cards offer the same cash back percentage on every qualifying purchase, making them easy to understand and use.

Curious to learn more? Check out: Flat Rate Cash Back Credit Cards

Flat-rate cards often come with no annual fee and a simple earning structure, with consistent rewards on every purchase. For example, the Wells Fargo Active Cash Card offers a flat 2% cash back rate on all purchases.

Fixed category cards offer higher cash back percentages on specific types of purchases, such as gas or groceries. These cards can be a good choice for people who frequently make purchases in these categories, like the Blue Cash Everyday Card from American Express, which earns 3% cash back at U.S. supermarkets, U.S. gas stations, and U.S. online retail purchases.

Rotating category cards offer bonus cash back on specific categories that change quarterly or annually. For example, the Chase Freedom Flex Card offers 5% cash back on activated, rotating categories each quarter, and 5% back on Chase Travel purchases.

Here's a summary of the three main types of cash back structures:

Flat-rate cash back cards offer the same cash back percentage on every qualifying purchase, making it a hassle-free approach to cash back. This type of card is great for predictable rewards and doesn't require juggling credit cards for different spending categories.

The best flat-rate cards give cardholders 1.5 percent to 2 percent cash back on every purchase. The Citi Double Cash Card provides up to 2 percent cash back on every purchase, with 1 percent earned when making purchases and another 1 percent earned when paying off purchases.

Flat-rate cards are useful for purchases that aren't typically covered by bonus or rotating category cards. They're also useful for recurring expenses like utility and internet bills.

Some flat-rate cards come with no annual fee, making them an attractive option for those who want to earn cash back without incurring extra costs. The Wells Fargo Active Cash Card offers a flat 2 percent cash back rate on all purchases, with no annual fee.

The pros of flat-rate cards include a simple earning structure, consistent rewards, and often no annual fee. Here are some of the benefits:

However, flat-rate cards also have some cons, such as slow to accumulate rewards, missing out on higher rewards in various spending categories, and making it easy to forget rewards with their hands-off structure.

Tiered Category cash back cards offer higher cash back percentages on certain types of purchases. These cards are called tiered-rate cash back cards because you get a higher rate of cash back, usually between 2 and 3 percent — but sometimes much higher — on purchases in certain categories, like gas or groceries.

Some tiered category cash back cards have spending limits that will cause the category rewards to drop down to 1 percent once that limit is reached. For example, the Blue Cash Everyday Card from American Express lets you earn 3 percent cash back at U.S. supermarkets, U.S. gas stations and U.S. online retail purchases on up to $6,000 per calendar year in purchases in each category (then 1 percent).

The rewards for tiered categories may be higher than flat rate cash back credit cards, but card users would need to keep track of the categories to make the best use of these rewards. This can be a bit more complicated, but it's worth it for the higher earnings potential.

Here are some examples of tiered category cash back cards:

Having a cash back credit card can be a great way to earn rewards on your everyday purchases. One of the main benefits is the simplicity of the earning structure, which can make it easy to understand and track your rewards.

Flat-rate cards offer consistent rewards, so you know exactly how much cash back you'll earn on every purchase. This can be a big advantage if you want to earn rewards without having to worry about rotating categories or spending limits.

Tiered-rate cards, on the other hand, offer higher rewards in common spending categories, giving you the opportunity to strategize for maximum rewards. This can be a great option if you know you'll be making a lot of purchases in specific categories.

Rotating-category cards offer high rewards in common everyday and popular seasonal categories, which can be a great way to earn rewards on things you already buy. For example, if you know you'll be buying holiday gifts, you can use a rotating-category card to earn high rewards on those purchases.

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Choose-your-own-category cards give you the power to customize your card for top rewards, allowing you to strategize your spending and expenses to maximize earning. This can be a superior option if you want to earn rewards on specific categories or purchases.

Some credit cards, like the Citi Double Cash Credit Card, offer no caps on the amount of cash back you earn and no category restrictions, making it easy to earn rewards without worrying about limits or enrollment.

Flat-rate cards can be a great option for earning cash back, but it's essential to consider their limitations. One drawback is that they often come with a lower rewards rate compared to tiered cards.

Some flat-rate cards may have a rewards rate as low as 1.5% or 2% on all purchases, which can be disappointing if you're used to earning higher rewards.

Consider your spending habits and whether a flat-rate card's consistent rewards will meet your needs.

Flat-rate cards can be slow to accumulate rewards, making it take a while to earn a significant amount of cash back.

For example, with a 1.5% cash back rate on all purchases, it would take $1,000 in spending to earn just $15 in cash back.

You may miss out on higher rewards in various spending categories if you're using a flat-rate card.

As mentioned in Example 2, a flat-rate amount of 1.5% on all purchases might not be as lucrative as earning 2% cash back on certain categories with a bonus rewards card.

A flat-rate card's hands-off structure can make it easy to forget about rewards, especially if you're not regularly checking your statements or tracking your spending.

This can lead to missed opportunities to earn more cash back, which might be a drawback for some users.

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Rotating-category cards require a high degree of strategy and hands-on attention to maximize rewards. This can be overwhelming for some users who prefer a more straightforward approach to their credit cards.

One of the main drawbacks is that activation is required quarterly to earn top rewards. This means you'll need to remember to activate your card regularly to avoid missing out on potential rewards.

You'll also be locked into the issuer-chosen categories, which may not align with your spending habits or preferences. This can limit your earning potential and make it harder to get the most out of your card.

Here are some key cons to consider:

Cash back rewards are stored in your credit card account until you choose to redeem them, and there are many ways to use them, including statement credits, online shopping, and gift cards.

You can deposit your cash back directly into a bank account or use it to make a charitable donation with some cards.

Some cards even offer the option to use your cash back to book travel through the issuer's online portal or connect your cash back rewards to PayPal or Amazon.com.

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You can earn cash back in the form of points, like with the Chase Freedom Unlimited card, which earns cash back in the form of Chase Ultimate Rewards points.

Those points can be combined with points earned through other Chase cards and redeemed for travel or even transferred to travel partners depending on the other cards you hold.

Make sure you understand all the ways your credit card allows you to redeem your cash back rewards.

The process of redeeming your rewards depends on the rules of the individual cash back card you hold, and some cards may require you to accrue a minimum amount of cash back rewards before you can redeem them.

You can redeem cash back rewards by requesting a statement credit to offset your current card balance or by having the funds deposited into a linked bank account.

Some cash back cards actually earn points instead of cash back, and in that case, cardholders can often redeem their rewards for travel through their issuer’s travel portal.

You can get cash back rewards on a rolling basis with some cards, or you may have to meet a minimum redemption threshold before you can redeem them.

The Citizens Cash Back Plus World Mastercard offers 1.8% cash back on everything you buy.

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Your credit score is a crucial factor in determining whether you'll be approved for a cash back credit card. It's calculated based on your credit history, payment habits, and other financial factors.

A good credit score can help you qualify for better interest rates and terms on your cash back credit card. This is because a high credit score indicates to lenders that you're a responsible borrower.

To improve your credit score, focus on making on-time payments and keeping your credit utilization ratio low. This means keeping your credit card balances below 30% of the available credit limit.

Your credit score is calculated based on various factors, but have you ever wondered what factors determine your credit score?

Credit cards can have a significant impact on your financial health.

Using credit cards responsibly is key, and knowing how to use them can vastly improve your credit score.

Your payment history accounts for 35% of your credit score, so making on-time payments is crucial.

Credit utilization is another important factor, as it makes up 30% of your credit score.

Keeping your credit utilization ratio below 30% can help improve your credit score.

Credit mix, which accounts for 15% of your credit score, is also important.

Having a mix of different credit types, such as credit cards and loans, can help improve your credit score.

New credit inquiries, which account for 10% of your credit score, should be kept to a minimum.

Avoid applying for multiple credit cards at once to minimize the impact on your credit score.

Your credit history length, which accounts for 10% of your credit score, is also important.

The longer your credit history, the better it is for your credit score.

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To get a credit card through a credit union, you'll need to meet their approval requirements, which are often less stringent than those of traditional banks. Credit unions are member-owned, not-for-profit financial cooperatives, and their approval process can be more personalized.

Credit unions consider your overall financial health, income, and debt-to-income ratio when deciding whether to approve you for a credit card. This means they may view your credit history more holistically than larger banks.

Your credit score is still a factor, but it's not the only consideration. Credit unions may also take into account your employment history, savings, and other financial factors.

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Community First's Visa Signature Card is a great example of a card that offers a decent percentage of cash back on all purchases, earning 1.5% back on every purchase you make.

Consider your spending habits and choose a card that offers extra cash back in categories where you spend a lot. For example, an avid traveler would want a card that offers extra cash back on hotels, flights, and rental cars.

To maximize your rewards, use your card on all eligible purchases and make it a habit to put all purchases you can on your credit card, without carrying a balance to the next month.

Don't forget to read the fine print to make sure there aren't any restrictions on how and when you can redeem your rewards. Some cards may have a minimum amount that you need to accumulate before you can redeem your rewards.

Here are some popular choose-your-own-category cash back cards:

These cards offer the power to customize your card for top rewards, the opportunity to strategize spending and expenses to maximize earning, and superior rewards earning potential.

To maximize your cash back earnings, use your credit card for all eligible purchases, including everyday expenses like groceries, gas, and utilities.

Make sure to pay off your balance in full each month to avoid negating rewards and paying interest fees. This is essential, as carrying a balance will end up costing you money in interest payments.

Using your credit card for larger purchases, like furniture or a new TV, can also earn you cash back rewards.

If you can't pay off your entire balance each month, try to pay off enough so that you're not paying any interest fees.

One of the best ways to use your cash back rewards is by using them to offset the cost of everyday purchases, such as gas or groceries.

For example, if you have a card that offers 3% cash back on grocery purchases, you can use that money to help pay for your groceries each month.

Using your cash back rewards to save money on gas purchases can add up over time and really help reduce the cost of your gasoline expenses.

Letting your points accumulate over time and then redeeming them for larger purchases, such as a vacation or new furniture, can also save you money in the long run.

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