How to choose a rewards credit card

No matter what you spend your money on, a rewards credit card offers extra value on your purchases. But comparing credit cards isn’t always easy. There are different types of rewards and many of the top credit cards are designed to be especially lucrative for specific purchases.

Before you submit a new card application and add a hard inquiry to your credit report, answer these four questions.

Credit card rewards generally come in the form of cashback, miles you can use toward travel or brand-specific points.

Cash back is the most straightforward. With most cash-back cards, you earn a certain percentage of cash on your spending. The Capital One QuicksilverOne Cash Rewards Credit Card (a good card for average credit) offers an unlimited 1.5% cash back on all your purchases. Other cards, like the Chase Freedom Unlimited®, let you earn points that can be converted into cash back. Many of the top cash-back cards earn 2% cash back on every purchase, which is a return that’s hard to beat.

Travel rewards usually offer more flexibility, but the additional redemption options can be more complicated. For example, Chase Sapphire Preferred® Card earns Chase Ultimate Rewards® points, which you can transfer to 14 partner airline and hotel loyalty programs. This means you’ll never be stuck having to redeem points with a single program.

Meanwhile, an airline credit card like the United℠ Explorer Card offers bonus United miles for your spending with United and at restaurants and hotels. United miles are useful, but provide fewer redemption options than transferrable points. If you want to use United miles for award flights, you’re limited to booking at the prices United offers, whereas with flexible points you can access the prices offered by many different loyalty programs.

Points and miles aren’t created equal. When you earn 1X miles or points, you’re not necessarily getting the same value as when you earn 1% cashback.

Cashback is easy to redeem and typically has a fixed value. If you have $100 in cash-back rewards, it’s generally worth $100 no matter how you redeem it.

When you have points or miles with flexible redemption options, you can dramatically boost the value you receive. You may be able to redeem travel rewards for cash back or gift cards and receive one cent per point. This is essentially the same value as cash-back rewards, but you can get much more than that.

For example, Chase Ultimate Rewards points are typically valued at over two cents per point because you can transfer them to airlines and hotels to book luxury stays or expensive business-class flights. That means earning 1X Chase points can be as valuable as earning 2% back when you take advantage of the best transfer partners.

On the other hand, it’s more complicated to get the best value from transferrable rewards. Also, certain redemptions may have a value of less than one cent per point, so you’ll want to pay attention to how you use your flexible travel rewards.

Compare savings accounts

Many of the top rewards cards have annual fees and high interest rates. You may also pay taxes and fees when you redeem airline miles for award flights. So make sure you read the fine print when determining a card’s cost.

There are tons of great options with sub-$100 annual fees and these make sense as mid-tier or beginner travel cards. You’ll have to pay a higher annual fee (typically $300+) if you want luxury perks. However, premium credit cards usually have a longer list of valuable benefits that can help offset the cost.

You can avoid interest by paying your balance on time and in full every month. A 0% APR credit card with rewards can help you avoid interest charges if you’re unable to pay off your entire balance by the due date.

The Wells Fargo Active Cash® Card could be a good option in this situation. It has a 0% intro APR for purchases and qualifying balance transfers for 12 months from account opening (after that, 19.74%, 24.74% or 29.74% variable APR applies). Plus, it earns 2% cash back on all purchases. There is an intro balance transfer fee of 3% with a $5 minimum, then up to 5% with a $5 minimum after 120 days from account opening.

Rewards credit cards help you turn your purchases into valuable cash back, miles or points. Before you apply, make sure you shop around for the best card for your spending habits and check your credit score. Many of the best cards require good or excellent credit to qualify.

And while charging everything to your card may earn you more rewards, make sure you only spend what you can afford or you could end up paying more in interest than you earn in rewards.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every credit card story is based on rigorous reporting by our team of expert writers and editors with extensive credit card knowledge. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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For rates and fees of the American Express Gold Card®, click here.

For rates and fees of the Blue Cash Preferred® Card from American Express, click here.

*Cash Back is received in the form of Reward Dollars that can be redeemed as a statement credit or at Amazon.com checkout.