Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk
23 November 2017

Cashback on your credit card – How it works

The cash back system on credit cards works by you, the borrower earning a percentage of your spend back in the form of ‘cash back,’ each time you use the credit card in question. For example, if your chosen card provider offers a 1% cashback scheme, and you spend £100, you will be earning a pound for each hundred spent, or a penny in each Pound spent. Likewise, if you are offered 5% for example, and you spend £100, you will be earning £5 as cash back.

The cash back is typically rewarded on an annual basis and in one lump sum. However, some card providers may pay you the cash back on a monthly basis or on another bespoke basis as agreed between you, the borrower and the credit card provider. In some cases, providers will allow you to exchange your rewards points gained on the card through numerous purchases and transactions (although not internal transfers) to qualify for a 'reward.' It is important though to only apply when the chances of being accepted for the card in question are high, as a rejection will likely show up on your credit rating. If you are not sure, it may be worth considering short term loans instead of a credit card.

Types of Cashback Schemes Available

  • Some credit card providers will simply pay a flat rate as cashback, which does not depend upon how much you have spent. Therefore, if you have spent less you still get the same amount of cashback although if you have spent more the same applies.
  • Some providers will pay you in tiered rates of cashback, dependent upon how much you spend. Be wary of these though, as this can be feature which designed to tempt you to spend more than you can actually afford, potentially leading to a spiral of debt if not careful. Make sure you can afford this comfortably, so do not fall into this habit just because of a cashback scheme.
  • Others credit card providers will offer a different rate of cashback which is dependent upon where you have spent your money. For example, you may break down where you spend your money: 1% in the supermarkets, 2% in retail shops, 3% on travel or on petrol and so on. NatWest for example, offers 1% in rewards on purchases made in supermarkets and 0.5% on all other purchases. This is often done to help guide credit card owners to spend where it is more ‘worthwhile.’

How to Apply for Cashback or Rewards on Credit Cards

When considering applying for a cashback rewards credit card, you should always compare your options, assessing and weighing up what each provider can offer you in terms of cashback or rewards schemes.

To apply, simply approach the chosen credit card provider or bank. It is best to go in to a branch or speak over the phone and discuss with a customer service advisor what options are available. Just as when applying for any credit card, you will be asked various questions about your general income and spending habits in order to determine just how much your monthly credit limit should be set at. When applying for any credit card though, you should specify that you are looking for a rewards credit card, as these are not always the default option.

If you do choose a rewards credit card, there may be fees involved and these may need to be paid annually or monthly depending on the specific provider.

You can also apply online for a rewards credit card and the application should be fairly quick, asking you to fill out information about yourself including your age (must be over 18), your income (must usually be above £10,000 per year), whether you are a mainland UK resident, your address and various other details before they do their credit checks to approve or reject your application.

When Are Cashback Cards a Good Idea?

If you consistently pay off your credit card in full every single month, then it may be worth looking into getting yourself a cashback reward credit card, since you know you will be able to keep on top of the repayments as well as any fees. If you do not always pay your credit card bills off in full every month, say for example if you need a payday loan fairly frequently to afford your repayments, then a rewards credit card with cashback is not such a great option for you.  

Do not get a rewards card just to spend more than you usually would or can comfortably afford on a regular basis. A rewards card is perfect for a person who will be getting rewarded for the money they would be spending ordinarily, for example at the grocers, the supermarket and for petrol. The extra cashback can be somewhat devalued and irrelevant if you are not able to pay off your bill at the end of the month because the rewards will be outweighed by the burden of debt.

It is important to note that you should always aim to pay off the credit card bill you rack up, in full each and every month in order to maximise any rewards on offer and to ensure you do not fall unnecessarily into debt.

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Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk