Best Rewards Credit Cards
First thing’s first when looking into rewards credit cards, you need to know what type of reward you would really want and benefit from!
Introduction to Credit Card Rewards
Millennials have a few reasons to be skeptical of credit card rewards. You probably get mail every day advertising the best rewards cards, then turn around and read news about millennials and credit card debt.
I get it. With so much money stress, you’re probably wondering “why should I get a credit card?”
Not to mention, millennials have a, let’s say, *complicated* relationship with paying off student loan debt.
As one of the oldest millennials, or perhaps a “Xennial”, depending on who you ask, I grew up at a time when credit cards were sold like candy on college campuses, and it seemed everyone you knew was in some level of credit card debt.
Then, millennials just a few years younger than me started getting wise about credit cards. Then, the 2008 recession happened, and it really soured our entire generation from any kind of credit risk.
Despite my own experience with credit card debt, I’ve always believed eschewing credit cards entirely isn’t the right move. For one, using a debit card for everything is risky. A single overdraft fee can be more expensive than a month’s interest on a small credit card balance. Second, credit cards offer much stronger purchase and fraud protections than debit cards. Without a credit card, getting a hotel room requires large cash security deposits, and renting a car may not even be possible. Finally, debit cards don’t build the credit history you might need to get a mortgage or other type of financing.
If that wasn’t enough, there’s the obvious fact that using a credit card can be rewarding.
For example, after opening one rewards card, I was able to book a round trip flight from Chicago to LA for $11.20.
Yes, you’re reading that right. $11.20. Imagine having that kind of savings, all the time. There is a small learning curve, but you can do it.
Let’s start by learning about the types of credit card reward programs, and how to know what kind of reward credit card is best for you. If you’re a complete beginner to this topic, check out our basic post on how do credit cards work.
4 Types of Rewards Credit Cards
1. Transferable Points Cards
Sometimes the highest credit card rewards come in the form of transferable points.
Transferable Points Cards basically work like this: You earn points with your credit card through strategic spending and sign-up bonuses.
These points are sometimes called “miles,” but really they can be redeemed at the typical rate of 1 cent per point for a variety of purchases.
When you’re ready to book a trip, you can transfer those points to an airline or hotel partner for some seriously sweet redemptions!
How Do You Use Your Points?
Use your points to pay for things directly through your credit card’s shopping page. Purchase deals on airfare and hotels, OR use them for shopping at partner outlets like Amazon.
It all depends on what kind of card you have.
How Fast Do You Earn Points?
With every dollar spent, you accumulate rewards. You can sign up for unlimited rewards cards that earn you 1-3% “cash” in the form of miles and points that are stored in your account until you redeem them.
Some cards have redemption minimums, and others let you claim your rewards anytime.
The Best Transferable Points Card for Millennials
There are three main players in the transferable points space:
- Chase Ultimate Rewards
- Citi ThankYou
- Amex Membership Rewards
Important: Unlike pure cash back cards that credit your account or transfer your balance when you close your credit card, transferable points are “use them or lose them.” Be sure to use or transfer your points before closing your account, or you will lose them all.
That said, transferable points cards are my personal favorite because you can get an insane amount of value out of them.
Chase Ultimate Rewards
Hands down, I always recommend starting with the Chase Sapphire Preferred card. Why?
Because Chase Ultimate Rewards Points® are incredibly powerful.
Chase has one of the best and biggest partnership networks out there. That means Chase Ultimate Rewards Points® are as good as gold – and sometimes better.
Here are all of the Chase Ultimate Rewards partners where you can redeem your transferable points:
- Aer Lingus AerClub
- Air France/KLM Flying Blue
- British Airway Avios
- Iberia Plus
- JetBlue TrueBlue
- Singapore Airlines KrisFlyer
- Southwest Airlines Rapid Rewards
- United Airlines MileagePlus
- Virgin Atlantic Flying Club
- World of Hyatt
- IHG Rewards Club
- Marriott Rewards
- Ritz Carlton Rewards
Imagine. A currency that’s good anywhere, with no foreign exchange fees. That’s what a transferable points card will offer.
2. Branded Airline and Hotel Cards
Unlike the Transferable Points Cards where you can transfer your points to a number of different partners for redemption, Branded Cards are tied to one specific airline or hotel.
For example, if I were to open a Southwest Rapid Rewards Premier Credit Card, the points that I earn would automatically transfer to my Southwest account.
Consequently, these points could only be used to book Southwest flights (or their travel partners in specific cases)
What to Know When Opening a Branded Rewards Card
First of all, strategically select an airline or hotel brand that you’ll actually use.
The cool thing is that even if you cancel the credit card you accumulated the points on, you’ll still keep the points on your brand’s account! Some points expire after a specified period of time (usually at least 24 months), so make sure to look at the terms and conditions.
The Best Branded Credit Card for Millennials
If you want to maximize your credit card rewards in 2021, check out the best Branded Card options.
Pro Tip: Check out all of our Best Airline Credit Cards.
3. Travel Cards
Having the right credit card rewards can make travel affordable for millennials.
Cash Back Travel Cards are perfect for any non-airline and non-hotel travel expenses such as cruises, Uber, Airbnb, rental cars, expeditions, and so on.
The key thing here is that, in order to use your points, the expense must be coded as “travel”.
The reason why I love these cards so much is that they typically offer lucrative sign-up bonuses and great travel perks. Plus, they are super easy to use.
How Do They Work?
First, you accumulate points on your Cash Back Travel Card. Next, you book/pay for your “travel” coded expense on the card.
Lastly, after the payment has been processed, you log on to the credit card website and erase the cost of the purchase using your points. It’s that easy!
The Best Travel Card for Millennials
My personal favorite Travel credit cards is the Capital One Venture Rewards Credit Card. This card has helped me cover thousands of dollars in non-airline and hotel travel expenses.
Pro Tip: Check out all of our Best Travel Rewards Credit Cards.
4. Cash Back Cards
A good cash back reward card is a fundamental part of any good credit card strategy.
Why? These cards are an excellent way to get immense value out of your everyday spending.
The Best Cash Back Credit Card for Millennials
My current Cash Back favorite is the Chase Freedom Unlimited Credit Card.
With its current offer, you earn a one-time $200 cash back bonus after you spend $500 within 3 months of account opening.
Plus, you get awesome perks like 1.5x rewards on all purchases, no foreign transaction fees and no annual fee.
You can even earn 5% cash back on grocery store purchases (not including Target® or Walmart® purchases) on up to $12,000 spent in the first year.
Pro Tip: Check out all of our Best Cash Back Credit Cards.
How to Make the Most of Your Credit Card Points
We’ve said it before, we’ll say it a hundred times more – Wait until you’re in a financially solid place to before you start maximizing your credit card rewards.
The most important thing to remember when using credit card rewards is this:
Please do not attempt these strategies if you cannot pay your cards off in FULL and on TIME every month.
Learning how to make the most of credit card points is fun. It just is. But it’s not without risk.
Credit cards have an interest rate of somewhere between 12-27%. That’s, first of all, WIDELY variable. Second, that’s roughly $20 of interest for every $100 you keep on your balance per year.
You do the math – there’s no way that even a 3% cash back card would be worth it if you carried a balance on any of these credit cards.
Disclaimer aside, there are few strategies we’ve picked up along the way. Here’s how to get the most out of your credit card rewards:
Timing is Everything!
Like I mentioned earlier in this post, Chase Ultimate Rewards Points® is probably the most valuable “travel currency” you can get.
But there are some rules and restrictions around acquiring Chase cards. One of the most important restrictions to be aware of is the Chase 5/24 rule.
What is the 5/24 rule? Basically, the 5/24 rule states that if you have opened 5 credit cards within the past 24 months, you will NOT be approved for any Chase credit card (with some exceptions).
Since the Chase cards are so valuable, I recommend getting them first before you exceed the 5/24 rule.
Sign Up Bonuses are Key
Don’t let this happen to you: Often, people get one good rewards credit card and hold onto it for several years. But this results in TONS of points being left on the table.
So what exactly is a sign-up bonus? Typically, the offer reads something like this:
“Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening.” Start noticing these bonuses and, when it makes sense, take advantage of them!
Don’t Cheat Just To Hit The Minimum Spend
You definitely DO NOT want to make extraneous purchases just to hit a minimum spend.
There are plenty of other viable strategies that don’t involve spending additional money, like:
- Move all of your regular spending onto your new credit card. This should include bills, groceries, gas, entertainment, and anything else that you spend your money on in a given month. If your regular spending is too low to hit the sign-up bonus, don’t worry, you have a few more tricks up your sleeve.
- Prepay bills and utilities. Most companies including your insurance, electric, heat, gas, etc. are more than happy to accept prepayments. Plus, you get to put money toward your minimum spend that you would have spent in the future anyway. It’s a win-win.
- Utilize friends and family. Adding a trusted friend or family member as an authorized user is a great way to increase your spending. The keyword here is trustworthy. Bonus – a lot of credit cards will grant you some additional points for each authorized user you add.
Using these strategies can really supercharge your spending and allow you to hit sign-up bonuses on more and more credit cards.
One of my good friends opens up a new card almost every single month and hits the minimum spend.
Dispelling Credit Card Myths
The #1 question I get regarding rewards cards is “But Dave, will using credit card rewards negatively affect my credit score?”.
The simple answer is “no.” But it helps to know what factors go into your credit score so you can enjoy your rewards with peace-of-mind.
What Affects My Credit Score?
Payment History (35%)
Your payment history score is comprised of three factors: Size of payment, the lateness of payment, and the historical frequency of late payments. Even one missed or late payment can drastically reduce your credit score.
Your utilization rate is calculated by dividing your total outstanding balance by all your available credit. For example, if you have three credit cards open with a total combined credit limit of $10,000 and have a $2,000 outstanding balance, your utilization rate would be 20% ($2,000/$10,000).
Credit card rating agencies have stated that a 10% utilization rate is ideal. But if you’re paying your balance off in full each month, and using rewards to pay for extras, then your utilization should not exceed this.
Length of Credit History (15%)
Basically, your length of credit history is determined by taking the average “age” of all your outstanding credit. If you opened a credit card three years ago, the “age” of that card would be 3 years. The longer your credit history the better.
This factor may be slightly impacted by using these credit card rewards strategies, but not significantly. Since you’re opening up a new card, by default, your average length of credit history will decrease. However, this barely moves the needle if you have had a history of diverse, stable lines of credit (mortgage, auto loan, credit cards).
Credit Mix (10%)
Your credit mix score is impacted by the total number and type of credit accounts you have open. The more expansive and diversified your credit mix is, the better.
That’s why this factor is actually boosted by utilizing these credit card rewards strategies. Each new card that you open adds diversity to your outstanding credit.
Recent Activity (10%)
Your recent activity score is based on your credit history over the past six months. This includes the number of new accounts, date of most recent account opening, and quantity of recent credit requests. Whenever you apply for a new credit card, the card issuer will perform what’s called “hard inquiry” on your credit report to determine if you’re eligible for the card.
Implementing these credit card rewards strategies will slightly reduce your recent activity score for a very short period of time. In my experience, my credit score drops between 3-5 points after applying for a new credit card. However, my score always bounces back after about 3 months.
Why is this important? Being thoughtful about your credit activity helps you apply for a large loan like a mortgage within the next 1-3 months. If this is the case for you, it will be worth taking a break from applying for new credit cards. 5 points on your credit score could potentially make a difference with your mortgage lender.
Are Rewards Credit Cards Worth It?
Taking advantage of these credit card rewards strategies will not significantly impact your credit score. I have opened over 30 credit cards and maintain a credit score of 847.
BUT, as long as you’re responsible and intentional with your credit cards, these strategies can unlock THOUSANDS of dollars in “free” travel!
So, the choice is yours. We hope you get out there and earn a free vacation!