The idea of earning free flights or merchandise just for using your credit card can be very appealing. After all, who doesn’t love a freebie?

But before grabbing the sunscreen and hoping your next beachside vacation will be funded by card rewards, it’s important to be sure that getting a credit card for points stacks up financially.

Rewards come with a cost

The first must-know is that sometimes reward schemes come at a cost to card issuers, and that means reward-based cards usually come with a higher interest rate or fees. In fact, on some cards the annual fee can top $400!

So to get any sort of value from card rewards, you need to be confident you can regularly clear the card balance in full each month before interest charges apply. If you’re likely to carry a card debt from month to month, you could pay more in interest than you earn in rewards, and if that’s the case, a basic low rate card may be a more suitable choice.

Who do rewards cards suit?

It also helps if you’re a big card spender. According to a 2017 Rewards Card Survey, the average Australian puts $19,000 worth of purchases on their credit card each year. At that level of card spending, the average value of rewards is a measly $27 once you’ve taken the card’s annual fee into account.

If you spend $60,000 on the card each year, the average value of rewards rises to $424. It’s only when you clock up annual card spending of $120,000 that the average value of rewards jumps to $910. Have a look back through your card statements for an idea of your annual credit card spending.

It’s all about having the card that’s right for you

That’s not to say credit cards with points should be avoided altogether. The trick is to pick the reward program that suits your spending habits. That way you’re more likely to pocket value for money without unnecessary spending just chasing card points.

Some reward cards for instance don’t charge annual fees at all. Others come with free perks like complimentary travel cover, a concierge service or airport lounge access, which could see you save on other areas of spending. Or you may be able to take advantage of bonus offers to fast-track your points tally.

Keep an eye on the fine print

One of the pitfalls of card rewards is that they can be subject to a variety of conditions. Among the traps to watch out for is points expiring before you’ve had a chance to redeem them. Limits may also apply to the total points you’re allowed to accumulate.

If you decide to go with a rewards card, read the fine print to be sure you’re comfortable with the terms and conditions. And keep an eye on them over time. The nuts and bolts of reward programs – from the card’s rate and fees through to point caps, can change with little or no notice.

Consider the impact on your credit rating

If you’ve weighed up the pros and cons, and you’re sure it’s worth getting a credit card for points, the final step is to consider how it could affect your credit score.

Whenever you apply for a credit card, the enquiry can be recorded on your credit file and potentially stay there for up to five years. This can impact your credit score – and your ability to take out a loan or any other type of credit in the future.

To find out your credit score and learn more about how your card habits can impact your score, head to Credit Savvy.