How does credit card cash back work?When you use your credit card for an eligible purchase, you’ll earn a certain amount of cash back — that is, a cash rebate. Your earnings depend on the rates set by your card provider.
Cash back is expressed as a percentage. If your card offers 1% cash back, that means you’ll earn $1 in rewards for every $100 in purchases you make with your card.
Here’s a simple example: Let’s say your card offers 1% cash back on every purchase. You buy a laptop for $1,000. This means you’ll earn $1,000 x 1% = $10 in cash back.
What can I earn cash back on?If you have a cashback credit card, chances are it’ll offer at least 1% cash back on every purchase. This isn’t always the case, but it’s extremely common.
Some cards will offer different cashback percentages for different purchases, and this is where purchase categories come in. If you don’t want to worry about categories, consider a card that offers the same cash back on every purchase.
Why purchase categories matterIf you use your card to buy a plane ticket, you might classify that as a “travel” purchase. And if you use your card to pay for dinner, you might classify that as a “dining” purchase.
This is essentially what card networks do — they sort your purchases into categories. This is so your card issuer can offer you different cashback rates. For example, you might earn 3% cash back on travel and 4% cash back on dining.