What Are Cash Back Credit Cards?

What are cash back credit cards?

Cash back credit cards are credit cards that give you a rebate or cash back at the end of a certain period, either monthly or annually.  These cards originated in the early 1990s and are excellent tools for saving money on daily purchases.  As a general rule, these type of cards tend to have higher APR than other credit cards, but offer a decent amount of cash back on net purchases.  The range of cash back can be as low as .5% to as high as 2-5%, depending entirely on the card.  The higher range of cash back cards come from the seasonal schedule cards, a newer type that offers high returns on a rotating schedule of items such as gas, groceries, travel, and Amazon.com purchases.  This particular type of card is incredible for the disciplined purchaser, who is willing to hold off on a big ticket item until it is in the appropriate time period for the higher amount of cash back.


Who can qualify for credit cards that give cash back??

Cash back credit card - cash in hand

Consumers with a credit score of Good or higher are eligible for many of these type of cards.  While these credit cards have great rewards, they can sometimes be difficult to attain if you have bad credit, or not many instances of credit to date.  Sometimes they require an annual household income to be above a certain threshold, as well as having your credit score above a certain threshold to get access to the cards with the most attractive rebate packages.  It is critically important to ensure you have a good credit score before applying for this type of credit card, so you may need to use a credit card without this added perk before you qualify.

What is the best use of credit cards that give cash back?

These credit cards are great to use in daily purchases for items such as groceries, gas, and other basics.  This type of card is very advantageous for using on daily purchases, and are suited to individuals who aren’t as interested in the perks that rewards credit cards offer, such as complimentary benefits or upgrades at certain hotels and travel resorts.  Some people greatly prefer having points that they can redeem for items like dinner and a movie, or tickets to sporting events.  Consumers are advised to look at their spending habits and lifestyle before deciding if they want to own a cash back or a rewards credit card.  Credit cards with cash back aren’t nearly as efficient at purchasing plane tickets as something like AIR MILES credit cards, so consider how you are planning on spending your money from the cash back.  If you are planning on putting it towards a plane ticket to some tropical all-inclusive resort, a rewards credit card might be better for you in the long run.

Who should use these type of cards?

Cash back credit card wallet

This type of credit cards are very suitable to consumers who are able to meet their cash flow needs each month, and are capable of prompt payments for the entire balance.  This kind of credit card relies on paying off the balance each month to reap the benefits, as many of these cash back benefits do not trigger if you have an outstanding balance.  Consumers who keep a large balance on credit cards wouldn’t be appropriate for this kind of card, as the primary benefit wouldn’t be able to be realized.  Cash advances, while offered on most cards, do not offer any cash back while still taking up room on the credit card, so do your best to avoid this pitfall.  They are a great way to earn a bit of money back on day-to-day purchases, if the consumer is able to maintain complete monthly payments of the balance due.

What are some of the considerations for using these cards?

While credit cards offer an excellent benefit for those capable of using them, there are often crucial details buried in the fine print.  Some cards offer 2% back, but there is a tiered system of up to 2% cash back, with the advertised 2% requiring sometimes $2500 in monthly net purchases.  Other cards offer higher amounts of cash back for purchases in a certain category, such as gas, groceries, or travel.  It is vitally important to read the fine print, as certain credit card companies don’t recognize large retailers such as Wal-Mart as a grocery store, even though you can buy groceries there.  Also keep in mind most of these cards function off “net purchases,” which exclude things such as balance transfers and cash advances.

When does my credit card give me cash back?  Is it always cash?

Many cards that give cash back require you to opt in for your rewards, instead of being automatically sent out at the end of the business year.  The most diligent credit card user could easily be undone by failing to request their cash back reward, although most companies are willing to retroactively give out rewards if you request it shortly after.  It is vitally important to research the individual card, as some credit cards offer gift cards and credit with certain retailers instead of actual cash.  Depending on the type of card, you may need to use that credit card for a long time before the payout happens, as some cards are on an annual cash back plan.

Should I get this type of credit card?

Credit cards are a great thing to use for your daily purchases.  As long as you aren’t carrying a balance from month to month, there is a very real and tangible benefit to having this credit card in your wallet.  A credit card isn’t really appropriate for major purchases on big ticket items that you won’t be able to pay off in a month, nor are they a good idea for individuals who need to use cash advances to get to the next paycheck, as the cash advances do not count as net purchases for the purpose of determining cash back.  If you are the type of consumer who often pays for his morning coffee with his or her debit card, please consider signing up for a card for your purchases throughout the month.  Many credit cards have very attractive rebates assigned to groceries and fuel purchases, which is a major expense for many Americans.


Tagged with: