How Should I Choose a Rewards Points Card?

By Markets Fool.com

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So, you want to sign up for a rewards credit card to earn points that can be applied toward a variety of rewards? That's a great idea. After all, as long as you can be disciplined about your credit card use (paying your bills on time and not charging more than you can afford), a rewards card will essentially give you rewards for free.

Kind of rewards
It can be confusing, reading about points cards and rewards cards, and trying to distinguish between them. That's reasonable, because there's some overlap.

  • Cash and/or points: Reward cards may offer you cash back, points to use toward specific purchases, or a choice between the two. Each card program varies in how you're rewarded. Among cash-back cards, some might pay you 1% on all purchases and more on certain kinds of purchases, while others might pay a flat 2% back on all purchases. How you redeem your points can also vary. With many cards, each point translates into a dollar back for you, so if you spend $800 on your card in a month and earn 12 points that month, you may eventually get that back as $12 cash or be able to apply it to some purchase.
  • Transferable points: Some cards feature transferable points you would typically be able to use with a variety of travel-related companies when booking airline tickets or hotel rooms, or when renting a car. With the Chase Sapphire Preferred card, for example, you can transfer points at equal value to many frequent flyer programs and other reward programs. (The value of your points may be reduced when you transfer points between some other cards and programs.)
  • Retailer- or company-specific cards: These are tied to a particular retailer or other company, and they often give you more points when you spend money with that company. So, if you do a lot of business with certain stores, airlines, gas stations, or other companies, you might look into what kinds of credit cards they offer. TargetREDCard holders, for example, recently got 5% off all in-store purchases, while the Best BuyReward Zone MasterCard offered 4% back.

Don't get hung up on how a card is classified -- just focus on what it can offer you and whether you're interested.

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Many cards will give you cash back for purchases, which can really add up. Photo: Flickr user Julien GONG Min.

Considerations when choosing a card
Naturally, seek low interest rates and favorable terms and fees when selecting a credit card. Below are some more considerations related to rewards and points cards:

  • Annual fees: Don't assume any card with an annual fee is to be avoided. Some charge annual fees but also give you a higher level of rewards, perhaps letting you earn more points than a no-fee card. A typical annual fee, if a card charges one, is $100. Consider American Express' Blue Cash Everyday and Blue Cash Preferred cards. The former has no annual fee, and the latter charges $75. The former will pay you 3% back on supermarket purchases and 2% back at gas stations (some terms and limits apply), while the latter pays you much more -- 6% at supermarkets and 3% at gas stations. For many people, the $75 annual fee would be well worth it.
  • Sign-up bonus: Some cards will pay you several hundred dollars just for signing up and then using your card a certain amount in the first few months. There's nothing wrong with seeking a big sign-up bonus, but don't make it the most important factor. Settling for a lower one can be worth it in the long run. Other cards will offer a big batch of points for signing up, so long as you spend a certain amount in the first few months. If you can find a card with terms that will reward you well that also offers gobs of points, that's a great deal, as those points are often worth a few hundred dollars.
  • The fine print: It's not easy to compare rewards cards, because their terms can vary widely. Therefore be sure to read closely to find out about any point-earning limits, point-expiration terms, or the transferability of points. (Many points expire in 12 to 24 months.)

Using multiple rewards cards
It's not crazy to own and use several different cards in order to get the best discounts in different places or to earn the most points from different companies.

Keep in mind, though, that you might end up spreading yourself too thin and not accumulating enough points in any single system to be able to make the best use of them. It's often best to do most of your spending on one card in order to maximize its rewards.

Use your card wisely
Once you're using your point-generating credit card, don't lose perspective. The points and the goodies they'll get you are great, but don't start thinking it's OK to spend more than you need to just for the points.

The article How Should I Choose a Rewards Points Card? originally appeared on Fool.com.

Longtime Fool specialistSelena Maranjian, whom you can follow on Twitter, ownsshares of American Express. The Motley Fool recommends American Express. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.