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If you own or are planning on getting a credit card, you might be interested in knowing what cashback is. You would also want to know the best rewards credit card in the market and how to qualify for cashback on your purchases. Credit card cashback rewards are not automatic, and they are not free money – these facts, among others, are what this guide is set to cover. 

What is credit cashback?

Cashback is the money you get back as an incentive for using your credit card to pay for goods and services. It is the percentage of the reward paid back to you as cash for purchasing stuff with your credit card. So cashback enables you to earn money from credit card purchases – which is one of the significant benefits of using credit cards over debit cards. 

How does a credit card work?

Having established that cashback is the earnings you receive for using a credit card, it is a reward system set up to compensate you for a particular lifestyle. If your lifestyle entails buying groceries or eating out frequently, you get rewarded for these top spending categories through cashback. If you often pay for fuel or entertainment with your card, the cashback credit card lets you earn on your topmost expenses. 

The reward usually ranges from 1% to 5% of the transaction made via a credit card. 

How to benefit from credit card cashback?

The concept of cashback was conceived to enable customers to earn on their purchases and to encourage the use of payment cards. In many cases, you might be required to spend above a particular threshold amount to qualify for a cashback.

The cashback is applied to a customer on every eligible purchase in the categories of travel, grocery, entertainment, restaurant dining, electronics, and fuel, among others. Although cashback rewards are always on for qualifying purchases, the earnings might be higher within specific periods when a special promotion is being run.  

To benefit from a cashback, you must spend within a qualifying purchase category – such as fuel or travel. You must also spend above the minimum threshold – which varies from card to card. If the cashback is tied to shopping at specific retail outlets, then you must patronize the listed retailers to qualify for the targeted cashback.

It must be noted that cashbacks are earned and paid out to you in different forms. It can be paid to you as cash which gets deposited to your card account, or it can be earned as reward points redeemable at particular stores or applied to further purchases. This means that the refunds you earn can be used to purchase further items, obtained as a statement credit to reduce your bill for the month, and received as gift cards. 

Advantages of cashback credit card

– It motivates you to pay off your credit card balance and not exceed your credit limit each month since this is a condition for qualifying for a cashback.

– You may enjoy a sign-up bonus if your earning is tied to shopping at particular retail outlets. Many retailers also offer purchase discounts in addition to cashback.

– It enables you to earn a refund on a portion of your purchases. Cashback may not make you rich, but it can surely save you money in the long term.

You must be warned not to be tempted to spend beyond your capacity to earn cashback on your purchase. The idea of cashback draws people to spend above their normal budgets. Another drawback of cashback is that it may attract fees in certain instances, but this would have been mentioned in the fine print regarding card use.

Where does cashback come from?

In case you are wondering what the source of the cashback is – it is a portion of the fees that credit card companies charge to card users. This means that a part of the fees charged to credit card users is applied as cashback to reward other categories of users for meeting or exceeding certain purchase thresholds. The best rewards credit card does not rip off customers.

Also Read: OneRewards Update for June 2023

Summary:

This guide covers the essentials of credit card cashback. It clarifies what cashback is, how to qualify for them, its merits, and how to appropriate your cashback earnings.

By john