How do cash back credit cards work?

There are plenty of rewards credit cards out there. But if you’re looking for a simple way to earn money on purchases you’re already making, a cash back credit card could be right for you. 

But where do you start if you don’t know how these cards work? Before you apply, here are some things to know about cash back cards.

The idea behind cash back cards is pretty simple: When you use your card, you earn back a percentage of what you spend on it. And depending how a card is used, those rewards could add up quickly. 

But the way cash back rewards work can vary depending on the card. So it may help to learn a few more details before you apply. 

There’s no one way to explain how cash back cards work. The approval process and rewards percentages can vary depending on the card. And issuers might also have different ways they let customers redeem their cash back rewards. 

Generally, there are three categories of cash back cards: flat rate, tiered and rotating. Your rewards will vary depending on the issuer and which card you have, but here’s a quick overview:

1. Flat-rate cash back cards

The Capital One Quicksilver and QuicksilverOne cards are two examples of flat-rate cash back cards. They both offer unlimited 1.5% cash back on every purchase, every day. With flat-rate cash back cards, you earn the same percentage rate on every purchase you make with your credit card. So whether you’re buying gas, groceries or anything else, you’ll earn the same percentage of cash back every time. 

2. Tiered-category cash back cards 

Tiered-category cards let you earn different levels of cash back on different spending categories. For example, the Capital One Savor card offers 4% cash back on dining, entertainment, popular streaming services, 3% at grocery stores¹ and 1% on all other purchases. 

SavorOne has similar rewards: 3% cash back on dining, entertainment, popular streaming services and grocery stores¹, and 1% on all other purchases.

Plus, use rewards to redeem for travel, or earn unlimited 5% cash back on hotels and rental cars booked through Capital One Travel with Savor and SavorOne.

Credit card issuers know which purchases qualify for cash back rewards thanks to a four-digit number called a merchant category code. These codes are assigned to each credit card transaction. They help tell issuers which purchases qualify for different levels of cash back rewards.

3. Rotating-category cash back cards

Merchant category codes are also used with rotating-category cash back cards. Rotating cash back cards offer rewards for different spending categories throughout the year. Some cards may let you choose your categories. Other cards may have categories that change regularly and are decided by the credit card issuer. 

Purchases that don’t fall into bonus categories may be rewarded with a flat cash back rate. But bonus categories will typically earn a higher rate than other purchases. And you might have to remember to activate your bonus categories each time they change to earn your full rewards.

How often categories change is up to the card issuer.

In many ways, the benefits of cash back credit cards are the same as other cards. That can include features like fraud protection and digital tools to help you keep an eye on your finances. 

And, over time, with responsible use, you can build—or rebuild—your credit history and improve your credit score.

Earning cash back rewards can be a great advantage to having a credit card. Some even offer an early spend bonus. This generally requires you to spend a specified amount within a certain amount of time. From there you can earn a percentage of your spend back in rewards, plus the cash bonus.

Some cash back cards may even offer low or 0% introductory APRs. This can be helpful if you want to make a larger purchase, since you’ll have more time to pay off your purchase while paying only minimal—or no—interest.

You can also find cash back card options that have no annual fees.

How you redeem your cash back rewards can vary from card to card. It’s always a good idea to read your card’s terms and conditions closely so you know when and how you can redeem your rewards. But here are some of the ways that issuers might let you redeem cash back: 

• Online shopping: Some cards may let you put your rewards toward future purchases. Capital One lets you use your rewards to shop online with PayPal and at Amazon.com, for example.
• Gift cards: Some issuers let you redeem your cash back rewards in the form of gift cards to popular retailers, restaurants and more.
• Statement credit: You might be able to apply your cash back rewards directly to your credit card’s balance as a statement credit.
• Check or direct deposit: Some cards let you redeem your cash back rewards in the form of a check or a direct deposit to your checking or savings account. 
• Other: Some card issuers may give you other cash back redemption options, like donating your rewards to charity or using your rewards to cover all or part of a past purchase. 

Beyond the rewards themselves, there are a few things to consider before you apply for a cash back card—or any credit card, really.

• Card comparisons: How you earn and redeem cash back rewards is important. But it’s also a good idea to take a look at things like interest rates and annual fees to decide whether a particular cash back card is right for you. Looking at rates, rewards and fees can give you a good starting point to compare cards and to find one that fits your needs.
• Rewards redemption: Make sure you understand how long, and under what circumstances, your rewards can be used. For example, with Capital One, your rewards are yours for the life of the account. There’s no limit to how much you can earn and they don’t expire. But to redeem them, your account must be in good standing. That means it can’t be suspended, restricted, delinquent or in default. Plus, it’s good to remember that the value of the cash back you’ve earned could be outweighed if you revolve a balance and accrue interest. Paying off your balance before you’re charged interest is a good way to make sure you get the most value from your rewards.
• Credit decisions: Credit card companies consider many factors when deciding whether to approve an applicant for a credit card. And that might include things like your credit score. Capital One has cash back cards for credit levels that range from fair to excellent. 
• Credit monitoring: If you don’t know where your credit stands, you can get an idea by using CreditWise from Capital One. It’s a free tool that allows you to monitor your VantageScore® 3.0 credit score. And you don’t need to be a Capital One customer to use it. Plus, using CreditWise will never hurt your credit score.² You can also learn more about getting free copies of your credit report from the three main credit bureaus by visiting AnnualCreditReport.com.
• Credit impact: If you decide to apply for a credit card, including a cash back card, be sure you understand how that could affect your credit. If your credit application involves a hard inquiry, your credit score could take a temporary hit. And applying for multiple credit cards during a short period could send negative signals about your finances, according to the Consumer Financial Protection Bureau.
• Responsible use: Personal responsibility and credit go hand in hand. So before you start making plans for your rewards, be sure you know things like when your bill will be due each month and where you can check your minimum payment.
• More benefits: Cash back isn’t the only potential perk. A cash back credit card can be a great way to help you build your credit. But only when the card is used responsibly. That means staying within your credit limit, avoiding late payments and paying at least your minimum balance.

Capital One offers several simple and rewarding cash back credit card options. If you’re approved, you could start earning unlimited cash back on all your qualifying credit card purchases. And who doesn’t want to be rewarded for the things they’re already buying?