Credit Card Rewards
A practical step-by-step guide to credit card rewards, including preparation, instructions, common issues, tips, and next steps.
Credit Card Rewards
This guide explains how to approach credit card rewards, including the preparation, practical steps, common mistakes, and final checks that help you finish with confidence.
Before You Start
Step-by-Step Instructions
Quick Reference
Common Problems When You Use Credit Card Rewards
While credit card rewards can be a great benefit, it's easy to run into problems if you're not careful. Being aware of these common pitfalls can help you avoid them.
Overspending to Earn Rewards
This is perhaps the biggest and most common mistake. People sometimes buy things they don't need or wouldn't normally purchase, just because they want to earn more points or cashback. For example, you might buy a more expensive brand of coffee to hit a bonus spending target. This is counterproductive because you're spending extra money you wouldn't have otherwise, making the reward effectively cost you more than it's worth.
Fix: Stick to your budget. Only use your rewards card for purchases you've already planned to make. Think of rewards as a bonus on your existing spending, not a reason to spend more.
Not Understanding Redemption Rules or Value
It's frustrating to earn a lot of points only to find they're not worth much, or that redeeming them is complicated. Some points schemes offer poor value for certain redemption options, or they might have restrictions on when and how you can use them.
Fix: Before you commit to a card, always check the redemption options and their real-world value. For points cards, look for examples of what X number of points can get you. Make sure the redemption process is clear and straightforward.
Annual Fees Outweighing Rewards
Many rewards cards come with an annual fee. If you don't spend enough on the card, or if the reward rate isn't high enough, the fee can eat up all your earnings, leaving you with no net benefit or even a loss.
Fix: Calculate your expected annual rewards based on your typical spending and compare it directly to the annual fee. If the fee is higher, or if your net gain is very small, a different card might be more suitable.
Forgetting to Redeem Rewards or Letting Them Expire
It's easy to accumulate points or cashback and then forget about them. Some reward schemes have expiry dates, meaning your hard-earned benefits can disappear if you don't use them in time.
Fix: Set a reminder to check your rewards balance regularly, perhaps every three or six months. Make a note of any expiry dates and plan your redemptions. Many card providers have alerts you can set up.
Interest Charges Eating into Rewards
As mentioned before, if you don't pay your full balance every month, the interest you pay on the outstanding debt will almost certainly be much higher than any rewards you've earned. This means you're losing money overall, despite the rewards.
Fix: Always, without exception, pay your credit card bill in full and on time every single month. Set up a direct debit to ensure this happens automatically. If you can't pay it in full, a rewards card is not the right choice for you right now.
Advanced Tips for Credit Card Rewards
Once you've mastered the basics of using rewards cards responsibly, you might look for ways to optimise your earnings. These advanced tips require careful management and a strong understanding of your finances.
Strategic Use of Multiple Cards
For some, having more than one rewards card can maximise earnings across different spending categories. For example, you might have one card that offers high cashback on groceries and another that gives excellent travel points for fuel and holidays.
How to do it: Carefully research and select cards that complement each other, covering your key spending areas. Keep a clear record of which card to use for which purchase. This requires excellent organisation to avoid confusion and ensure you pay all balances in full.
Timing Large Purchases with Sign-Up Bonuses
Many rewards cards offer generous introductory bonuses if you meet a specific spending target within the first few months. If you have a significant, planned expense coming up (like new furniture, a holiday deposit, or home repairs), you could time your card application to coincide with this. This allows you to meet the spending target through your normal, necessary expenditure, unlocking the bonus.
How to do it: Only do this if the large purchase is already budgeted for and you can comfortably pay off the entire amount when the bill arrives. Never make unnecessary purchases just to hit a bonus target.
Leveraging Referral Bonuses
Some card providers offer bonuses for referring friends or family who successfully apply for and activate a new card. If you know someone who is genuinely looking for a new rewards card and would benefit from one you already use, a referral could earn both of you extra points or cashback.
How to do it: Ensure your friend understands the card's terms and conditions and that it's suitable for their financial situation. Only refer those who are responsible with credit.
Maximising Partner Promotions and Portal Offers
Many points and miles programmes have online shopping portals or specific partner promotions where you can earn extra rewards. For instance, clicking through a card provider's shopping portal before making an online purchase might give you 5 points per £1 spent instead of the usual 1 point.
How to do it: Regularly check your card provider's website or app for current offers. Install browser extensions provided by your rewards programme that alert you to extra earning opportunities when you visit retail sites.
Reviewing Your Rewards Strategy Annually
Reward programmes, annual fees, and your own spending habits can change over time. What was the best card for you last year might not be this year.
How to do it: Once a year, review your current rewards card(s) against your spending and compare them to new offers on the market. Consider if you're still getting good value, especially if there's an annual fee. Don't be afraid to switch cards if a better deal emerges, but remember that too many new applications in a short period can temporarily impact your credit score.
Credit Card Rewards FAQ
Are credit card rewards taxable in the UK?
Generally, no. For most personal use, rewards like cashback, points, or miles earned from your everyday spending are considered a discount on your purchases, not taxable income. However, if you were to earn very significant rewards that look more like an income (e.g., through large business spending), or if you deliberately sell rewards for a profit, then HMRC might view it differently. For ordinary personal use, you don't need to worry.
Do credit card rewards expire?
Yes, some do. Cashback generally doesn't expire, as it's typically paid out regularly. However, points or air miles often have an expiry date, which can range from one to five years. It's crucial to check the specific terms and conditions of your rewards programme to understand any expiry rules. Don't let your hard-earned rewards go to waste!
Can using a rewards card hurt my credit score?
Using a rewards card itself doesn't hurt your credit score. In fact, using any credit card responsibly (paying on time, keeping balances low) can help build a positive credit history. However, irresponsible use, such as missing payments, carrying high balances, or frequently applying for many new credit cards in a short period, can negatively impact your credit score. The key is responsible management.
What's considered a good rewards rate for cashback or points?
A "good" rate depends on the card and your spending. For cashback, a typical decent rate might be between 0.5% and 1% on general spending. Anything consistently above 1% is usually considered excellent, especially without an annual fee. For points, it's harder to give a universal number as their value varies. You need to calculate the cash equivalent of the points when redeemed. As a rough guide, if you can get 1p per point, that's often considered good value, but it can be higher or lower depending on the redemption option.
Can I earn rewards on balance transfers or cash withdrawals?
Almost never. Credit card rewards programmes typically exclude balance transfers, cash withdrawals, gambling transactions, and sometimes even fees or interest charges from earning rewards. Rewards are usually only earned on eligible retail purchases. Always check the terms and conditions to be sure.
Final Checklist for Credit Card Rewards
Before you start or continue using a credit card for rewards, run through this quick checklist to ensure you're on the right track for making clearer money choices.
By answering yes to these questions, you're well-equipped to use credit card rewards wisely and benefit from your everyday spending.
