Reward credit cards offer you the opportunity to be rewarded when you spend. They are available from numerous banks and issuers, and each offers different unique benefits.
What are reward credit cards?
Reward credit cards come in many different forms, but, in general terms, they are cards which offer discounts, benefits or rewards in return for using the card to spend.
The exact form the benefit/reward takes varies based on the particular product (cashback, supermarket loyalty points and travel rewards are all common), but whichever card you have, the higher your spend, the more you'll benefit from your card.
How do reward credit cards work?
Each reward credit card is unique, as are the precise mechanics of their benefit scheme, but most use the same method to fund the rewards they offer – ‘Interchange’.
You may have noticed when you make purchases online, there is often a charge for using credit or debit cards. This isn't because businesses want to cash-in on card users (although there may be some of that), but because those who accept card payments pay a percentage of the value of the transaction as interchange.
Interchange has been part of the payment card business model from the start, and although critics complain the charges are unfair (leading regulators to force reductions in the amount charged in recent years), when compared to cheque processing costs they have always been reasonable.
As card payment processing has become more automated, costs for processing transactions have reduced. Issuers have therefore been able to use interchange generated income, which is directly linked to amount spent, to fund innovative reward schemes, designed to encourage application, loyalty and spend on a particular credit card.
What types of credit card rewards are available?
There are numerous different credit card reward schemes available to UK consumers, but they broadly fall into two main subcategories of rewards.
Cashback cards have traditionally offered the most straightforward type of credit card rewards.
With traditional cashback products, each time you spent on your card, you’d get a percentage of the value of the transaction back as cash. The cashback rate differed by card (cards charging an annual fee offering higher returns), and sometimes the rate of cashback was tiered by spend, but products were broadly similar.
Traditional cashback products are still very popular, but recently a new breed of cashback cards has increased the product complexity. This is because they have parted from traditional flat-rate cashback, to use a system of category-variable cashback (e.g.,. Petrol at 0.5%, and 1% at Supermarkets).
Assuming a particular card offers higher cashback rates in categories you spend more on, then these cards can be very beneficial, but they do require a good knowledge of likely future transactions to evaluate their usefulness and limitations.
There are many different points-based credit card reward programs, but they all use the same basic premise; you earn points as you shop, which you then exchange for rewards.
Airmile cards are one of the most well-known points-based schemes. With these cards, you can get discounted flights and upgrades with points earnt shopping.
Credit cards associated with supermarket loyalty programs are an increasing popular choice, as they offer additional points for loyalty programs we already use, even when we shop disloyally. The fact that these reward programs are already widely understood means the tangible benefits they offer are more easily understood than those available from stand-alone issuer programs.
Essentially, supermarket reward cards capitalise on existing loyalty to loyalty schemes.
Can I get a reward credit card?
There are numerous reward cards available in the UK market. From those for excellent credit scores, to those with poorer credit histories. Whether or not you get a particular credit card depends entirely on your circumstances and the card's eligibility criteria. That being said, some factors will see your application rejected universally.
You are under-age In the UK you need to be an adult, over 18 years old, before you can legally be responsible for debts. If you're under 18, you'll automatically get rejected.
You are not a UK resident Only those who legally reside in the UK can be offered credit. UK card issuer’s credit agreements are enforced by UK law. If you are not a resident, the courts will have limited jurisdiction to enforce repayment orders, so lenders will not lend to you.
Your credit history isn't good enough Whether it's intended for people with good or bad credit score, every card will have eligibility criteria. If you don't meet their requirements, you won't be accepted.
Your income is too low Many reward cards, both for excellent credit and bad credit scores, have minimum income requirements. Even with a high credit score, if your income is too low you'll be declined.
You have too much credit All lenders have a legal responsibility to lend responsibly, so regardless of your income, if you are over-indebted, you will not be offered additional credit. Even if you are not currently over-indebted, but instead have high credit limits on your existing cards, lenders may still be wary of lending to you. Reduce your credit limits or close unnecessary accounts if you are in any doubt.
Getting the most from your rewards card
To get the most from your rewards card, you first need to ensure that you will use the rewards you receive. With cash, this is very likely, but if you get an air miles card, does the particular carrier fly to destinations that interest you? Does your supermarket reward card earn rewards for a loyalty program you use? Don’t apply unless you’re sure a reward card will benefit you, as unused credit will limit your opportunity to get better suited products in the future.
Assuming your rewards are of value, you then need to ensure that the value of the rewards you receive exceeds any charges you might incur with the card.
If your preferred card incurs an annual fee, be sure that your expected spend will earn you rewards with a monetary value that exceeds this cost
If you regularly fail to pay your full balance every month, credit card interest is applied and could cost more than the monetary value of any rewards you earn
Some reward cards offer 0% on new purchases, which can help people in this situation, but then you should be sure you’ll clear your balance in full before the introductory period expires, or you could be creating a problem for the future
Never use your card for ATM withdrawals except in an emergency, because high-rate interest is applied on cash withdrawals immediately
It depends on what you are going to use it for, and what you are going to do with any rewards. For many people, a cashback card is the simplest route for getting credit card rewards. Airmile cards can offer very advantageous rewards, from a cash-equivalent value perspective. Equally, if you’re already using a supermarket loyalty scheme, a reward card could be a useful way to boost your points. What you really need is the best rewards card for you.
It depends on the card you have. If you get a cashback card, your cashback is typically credited to your account once every year. If you have a points-based reward card, you'll be able to login to an online interface to browse and select your rewards.
In some instances, you can transfer points between reward schemes. For instance, Tesco Clubcard allows people to exchange Clubcard points for Avios (BA) or Virgin Flyer Club. However, this tends to be the exception rather than the rule, and in most cases points are non-transferable. Certainly something worth considering before you apply.