What is Cash Back on a Credit Card: Explained
Cash back rewards on credit cards are a popular way for consumers to earn money back on their everyday purchases. By using a cash back credit card, you can earn a percentage of your spending back in the form of cash, statement credits, or other rewards. In this article, we’ll explain what cash back is, how it works, and the different types of cash back credit cards available.
What is Cash Back on a Credit Card?
Cash back is a type of credit card reward that allows you to earn money back on your purchases. When you make a purchase with a cash back credit card, you’ll earn a percentage of that purchase back in the form of cash, points, or statement credits. The amount of cash back you earn depends on the specific card and the type of purchase you make.
Cash back rewards are typically easier to understand and redeem compared to other types of credit card rewards, such as travel miles or points. With cash back, you know exactly how much money you’re earning and can easily redeem your rewards for cash or statement credits.
How Cash Back Works
When you make a purchase with a cash back credit card, you’ll automatically earn a percentage of that purchase back in the form of cash back rewards. The percentage you earn depends on the specific card and the type of purchase you make. For example, some cards may offer 1% cash back on all purchases, while others may offer higher percentages for specific categories like groceries or gas.
Once you’ve earned a certain amount of cash back, you can typically redeem your rewards for statement credits, cash, or other rewards like gift cards. Some cards also allow you to automatically deposit your cash back rewards into a linked bank account.
Types of Cash Back Rewards
Cash back rewards can come in a few different forms, including:
- Dollars: Some cards offer cash back in the form of actual dollars that can be redeemed for statement credits or cash.
- Points: Other cards offer cash back in the form of points, which can be redeemed for statement credits, gift cards, or other rewards.
- Statement Credits: Some cards automatically apply your cash back rewards as a credit on your monthly statement.
- Online Shopping Credits: Some cards allow you to redeem your cash back rewards for credits that can be used for online shopping.
Types of Cash Back Credit Cards
There are several different types of cash back credit cards, each with its own rewards program and benefits. Some of the most common types of cash back cards include:
Flat-Rate Cash Back Cards
Flat-rate cash back credit cards offer the same cash back percentage on all purchases, regardless of the category. For example, a card may offer 1.5% cash back on all purchases. These cards are a good option for people who want a simple rewards program without having to keep track of bonus categories.
Some popular flat-rate cash back cards include the Capital One Quicksilver Cash Rewards Credit Card and the Chase Freedom Unlimited.
Tiered Cash Back Cards
Tiered cash back cards offer higher cash back percentages for certain categories of purchases, such as groceries, gas, or dining. For example, a card may offer 3% cash back on groceries, 2% on gas, and 1% on all other purchases. These cards can be a good option for people who spend a lot in certain categories.
Some popular tiered cash back cards include the Blue Cash Preferred Card from American Express and the Amazon Prime Rewards Visa Signature Card.
Rotating Category Cash Back Cards
Rotating category cards offer 5 percent cash back on categories that change each quarter, such as gas, groceries, or Amazon.com purchases. These cards typically require you to activate the bonus categories each quarter and may have a limit on the amount of cash back you can earn. These cards can be a good option for people who don’t mind keeping track of changing bonus categories.
| Quarter | 5% Cash Back Categories |
|---|---|
| Q1 (January – March) | Gas Stations, Tolls, Drugstores |
| Q2 (April – June) | Grocery Stores, Fitness Clubs, Gym Memberships |
| Q3 (July – September) | Gas Stations, Restaurants, PayPal |
| Q4 (October – December) | Amazon.com, Target, Walmart.com |
Some popular rotating category cash back cards include the Discover it Cash Back and the Chase Freedom Flex.
How to Redeem Cash Back Rewards
Once you’ve earned cash back rewards with your credit card, you’ll need to redeem them. The redemption process varies depending on the card issuer, but there are a few common options:
Redemption Options
- Statement Credit: You can redeem your cash back rewards as a credit on your monthly statement, which reduces your overall balance.
- Direct Deposit: Some card issuers allow you to deposit your cash back rewards directly into a linked bank account.
- Gift Cards: Many card issuers allow you to redeem your cash back rewards for gift cards to popular retailers or restaurants.
- Charitable Donations: Some cards allow you to donate your cash back rewards to a charity of your choice.
Minimum Redemption Requirements
Some cash back credit cards have minimum redemption requirements, which means you need to earn a certain amount of cash back before you can redeem your rewards. For example, a card may require you to earn at least $25 in cash back before you can redeem.
Other cards have no minimum redemption requirements, which means you can redeem your rewards at any time, even if you’ve only earned a small amount of cash back.
Qualifying for a Cash Back Credit Card
To qualify for a cash back credit card, you’ll typically need to have a good to excellent credit score. Here’s what you need to know:
Credit Score Requirements
Most cash back credit cards require a credit score of at least 670, which is considered “good” by most lenders. Some premium cash back cards may require an even higher score, such as 720 or above.
If you have a lower credit score, you may still be able to qualify for a cash back card, but you may receive a lower credit limit or a higher interest rate.
Options for Poor Credit
If you have poor credit, you may still be able to qualify for a cash back credit card, but your options may be more limited. Some issuers offer secured credit cards that require a cash deposit as collateral. These cards typically have lower credit limits and may not offer as much cash back as unsecured cards.
Another option is to become an authorized user on someone else’s cash back credit card. This can help you build credit while earning cash back rewards, but you won’t be legally responsible for paying the bill.
Maximizing Cash Back Rewards
To get the most out of your cash back credit card, there are a few strategies you can use:
Choose the Right Card
When choosing a cash back credit card, it’s important to pick a card that aligns with your spending habits. Look for a card that offers high cash back percentages in categories where you spend the most money, such as groceries, gas, or dining.
You should also consider whether you prefer a simple flat-rate card or a card with bonus categories that change throughout the year.
Take Advantage of Bonus Opportunities
Many cash back credit cards offer additional opportunities to earn cash back, such as:
- Large intro bonuses for spending a certain amount within the first few months of opening the card
- Referral bonuses for inviting friends or family members to apply for the card
- Extra cash back rewards for shopping through the card issuer’s online portal
Taking advantage of these bonus opportunities can help you earn even more cash back over time.
Pair with Cash Back Apps
Another way to maximize your cash back rewards is to pair your credit card with a cash back app. These apps allow you to earn additional cash back on qualifying purchases made through the app or website.
For example, let’s say you have a cash back credit card that earns 1% on all purchases. If you use a cash back app like Rakuten to make a purchase, you could earn an additional 5% cash back on top of the 1% you’re already earning with your credit card. Some popular cash back apps include:
- Rakuten: Earn cash back at hundreds of online retailers, including Macy’s, Walmart, and Amazon.
- Ibotta: Earn cash back on groceries and other in-store purchases by uploading receipts through the app.
- Dosh: Earn automatic cash back when you link your credit card and make purchases at participating retailers and restaurants.
By combining a cash back credit card with a cash back app, you can stack your rewards and earn even more money back on your everyday purchases.
See also:
- What Happens When You Get a Refund on a Credit Card with Zero Balance
- What is an Annual Fee on a Credit Card: Is It Worth It?
- What Is a Good Interest Rate on a Credit Card? – [Your Blog Name]
- What Is This Charge On My Credit Card?
- What is the name of the document that tells you what you need to pay on your credit card?
