How to choose a rewards credit card

Rewards credit cards, when used responsibly, can bring a nice stream of passive income and benefits by making regular purchases. Rewards take the form of cash back, airline and hotel points, general spending points and other cardholder perks. Some even have spending portals that allow cardholders to earn extra points when they make online purchases.

Is a rewards credit card right for you?

You may want to apply for a rewards credit card if you meet some or all of the following criteria:

• You have good or excellent credit. Most rewards cards require a good credit score, although there are some exceptions, such as the Discover it Secured Card, which is a secured credit card that gives cash-back rewards for spending.
• You generally don’t carry a balance. Rewards credit cards tend to have higher annual percentage rates, so if you carry a balance, the interest you accumulate probably will cancel out the value of your rewards.
• You travel regularly. If you’re a travel junkie, you can use your regular spending to help you build points toward your next trip, especially if you have a travel credit card.
• You’re loyal to a particular airline or hotel. When it comes to travel rewards, co-branded cards can help you rack up points faster for your preferred lodging and flights.
• You spend a lot in specific categories such as gas, groceries and restaurants. Some rewards cards offer additional points for common spending categories, sometimes as much as 6% cash back.

Types of rewards credit cards

If you meet one or more of the conditions above, determine your goals. Do you want to have some extra cash at the end of the month? Do you want to rack up points for a big trip? Maximize your miles on a particular airline? Your answers will help you choose what kind of rewards credit card works best.

Cash-back credit cards with bonus categories. Some cards offer standard rates for certain categories (e.g., 2% cash back on gas and groceries), while others offer rotating categories that change every quarter. These categories might include restaurants, gas or groceries, as well as more specific spending opportunities such as movie theaters, Amazon.com and wholesale stores.

Flat-rate cash-back credit cards. If keeping track of bonus categories sounds like a chore, a flat-rate cash-back card will give you a decent percentage back (usually 1% to 2%) on all purchases, regardless of spending category.

General travel credit cards with flexible redemption options. A general travel card is a low-maintenance way to earn points for flights and hotels by spending as you usually would. These types of cards allow you to spend your points at a variety of airlines or hotel chains, as opposed to a co-branded card. Most travel cards also offer a spending portal that allows you to book travel with your points at a special rate.

Co-branded credit cards. If you have a preferred airline or hotel chain, a co-branded credit card can get you to your next trip faster by earning you flight and room points.

Additional considerations

Annual fees. Annual fees can sometimes amount to hundreds of dollars, so it’s important to make sure you are earning enough rewards points on your card to offset them.

Foreign transaction fees and card acceptance. Some rewards cards may charge fees for purchases made overseas. Also, depending on your credit card’s payment network, you may encounter limited card acceptance outside the U.S. Factor these potential drawbacks into your decision.

Cardholder perks. Some cards offer unique perks, such as access to airport lounges or special events, which may help sweeten the deal for you.

If you’re in good financial standing with an above-average credit score, a rewards credit card can help you earn benefits by doing your regular shopping. Pay off your balances so that interest doesn’t eat up your rewards, and choose the right kind of rewards card for your lifestyle.

Chanelle Bessette is a writer at NerdWallet, a personal finance website.