Credit Cards

How Do Credit Card Points Work

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 7 minute read

Become familiar with the points, miles, and cashback programs offered by your credit card issuer and begin earning rewards immediately. Do you enjoy receiving freebies? Spending on a credit card may earn you free trips, gift cards, and even cash through rewards programs.

To entice you to apply for a card, credit card issuers may typically advertise incentives like large sign-up bonuses or cashback deals. For certain cards, you may also be able to redeem points for travel, cashback, and other benefits.

The finest rewards credit cards may not all have the same structure, but one thing is certain: if you utilize them correctly, you can frequently get the most out of them. Here’s how credit card points operate and how you may make use of them yourself.

Points, Miles, and Cashback rewards

Rewards programs offered by credit cards often allow customers to earn points, miles, or cashback, depending on the card’s terms and conditions.

Cashback rewards work

Cashback is the most common. A percentage of the money you spend on eligible purchases will be refunded to your bank account automatically. A good example is the American Express Blue Cash Everyday® Card, which gives 3% cashback at U.S. supermarkets up to $6,000 a year, 2% cash back at select U.S. department shops, and 1% cashback on all other purchases categories. Refunds are given in the form of a credit to your account.

After a specific amount of money has been earned, certain card issuers may lower your cashback offer, as you can see from this Amex card. Unlimited cashback may be offered by other issuers, however, the rate may not be as high as this Amex card.

How points and miles work

Points and miles, the two sorts of rewards you might get by using a credit card, frequently function in the same way. Both can be awarded depending on the amount of money you put in.

For example, the Chase Sapphire Preferred gives you one point for every dollar spent, but you can earn two points for every dollar spent on travel (not booked through Chase Ultimate Rewards) purchases and five points for every dollar spent on Lyft rides (through March 2022) and travel booked through Chase Ultimate Rewards, respectively.

Another example is the Capital One Venture Rewards Credit Card, which gives 5X miles on hotel and rental car reservations made through Capital One Travel and 2X miles on all other transactions.

Similar items may usually be obtained by exchanging points or miles for them. Both the Sapphire Preferred and the Venture Rewards cards, which we used as examples above, let you exchange your points or miles for a variety of rewards, including travel, cashback, gift cards, or goods. However, the value of each point (or mile) depends on the redemption option you pick. However, “points” and “miles” are not interchangeable in all cases.

For example, you may only be able to redeem miles for benefits at particular airlines or hotels if you have a co-branded credit card. The Delta SkyMiles® Gold American Express Card allows you to earn miles on every dollar spent, but the miles you earn can only be redeemed for flights on Delta or its airline partners.

Find out how to get cash back and mileage credits.

Points may be earned in several ways, some of which do not necessitate any changes to the way you already conduct your business.

Everyday purchases

Using your credit card for routine transactions is the most apparent method. At the grocery shop, instead of using cash, use your card to earn points or cashback benefits.

Welcome and sign-up bonuses

Sign-up bonuses are another opportunity to earn incentives. Special bonus offers may be found from many credit card companies for new customers who match certain conditions, such as making a particular number of purchases in a given length of time. For example, if you spend $500 in the first three months after opening your account with the Chase Freedom Flex credit card, you’ll receive a $200 bonus.

When you refer a friend

Referring friends and family to apply for a credit card might earn cardholders bonus points. If a new customer signs up using your referral link, you’ll receive a substantial bonus.

When you add authorized users

Additional points may be earned by adding an authorized user to your account.
Every purchase they make using your card will earn you points in your account once they’ve been added to it. As rewarding as it is, you should exercise caution when adding new members to your account since you are responsible for any transactions they make. In addition, adding an authorized user may incur a price, so make certain it makes sense for your business’s bottom line.

In reality, how many points can you actually earn?

It all depends on your spending patterns and the credit card you use when it comes to how many points or cash back incentives you may earn. A flat rewards rate is available on certain credit cards; on others, higher tiers are available for specific spending categories. By way of illustration, the Capital One Savor Cash Rewards card gives 8% cashback on Vivid Seats ticket purchases, 4% limitless cashback on eating and entertainment, 3% at groceries (excluding superstores like Walmart and Target), and 1% cashback on all other transactions (up to January 2023).

Optional rotating bonus categories are also available on some cards. If this is the case, your credit card will give a greater rewards rate for certain spending categories every quarter (or another predetermined period). There will be a new set of bonus categories at the end of the current quarter.

How much are your points worth?

Depending on how you redeem your points and whatever rewards program they belong to, the point values will vary. When redeemed for travel or products, credit card points typically have a value of one cent apiece. For example, 60,000 Capital One Venture miles may be redeemed for $600 worth of air travel.

It’s possible to get a better return on specific purchases with rewards cards and programs. To put it another way, the value of your Chase Ultimate Rewards points might change if you’re scheduling a trip. When booking travel through Chase’s website, the Chase Sapphire Preferred gives you a 25% discount, while the Chase Sapphire Reserve gives you a 50% discount.

A travel partner may be able to help you get more value out of your points and miles. Credit card points may be more valuable if you can transfer them into a program like an airline’s loyalty program, for example. There are a variety of credit card and airline reward programs to choose from, so make sure you do your research before making a decision; otherwise, you may be wasting your money.

How can you get your points back?

Depending on the credit card you have, you may redeem your benefits in several ways.

How to redeem for cash back

If you have a cashback credit card, for example, you may choose to get your rewards in the form of a statement credit, a bank transfer, or a check in the mail.

How to redeem your points and miles

You may generally redeem points and miles in a variety of ways.
The online shopping site of your credit card issuer is normally where you can redeem your points for items or gift cards. With your points, you’ll see how many different goods you can get for your money.

Travel awards can be redeemed in the same way as other types of rewards. You can use your points to book hotels, rental cars, flights, and more through the travel booking portals of most major credit card issuers. There are instances in which you may transfer your rewards to a travel partner and use their site to redeem them, such as a certain airline.

Choosing a rewards credit card: Things to keep in mind

Before signing up for any credit card, make sure you read the fine print.

Annual fees

Before signing up for a rewards card with a hefty annual fee, make sure it’s worth it. Consider whether or not the benefits you receive will be sufficient to cover your annual charge. Consider a rewards credit card with an annual fee. Using your credit card will need you to spend a particular amount in order to earn enough cashback to cover the yearly charge (or, better yet, to make money).

Restrictions on the use of rewards

If there are any restrictions on how you may use your rewards, be sure to check the fine print as well. For example, you may be unable to plan travel at certain periods of the year if your credit card has blackout dates or other restrictions. Rewards on other cards may be subject to expiration. If that’s the case, you’ll have a limited period of time to utilize your points before they expire.

Earning caps

Another thing to keep in mind is the number of prizes you may receive. While some credit cards let you earn as much as you want, others have a cap on how much you may earn.
You can get 5 percent cash back on rotating quarterly categories (up to $1,500 in spending) with the Chase Freedom Flex, but you can only earn 4 percent cash back on eating and entertainment purchases with the Capital One Savor Rewards card (including streaming services).

Paying off your balance

While it’s great to rack up reward points, remember that proper credit card use is essential. Spending too much on a credit card in order to get points might lead to debt. As a result of this, whatever benefits you receive might be swiftly wiped out by the interest you pay. Determine whether or not you can afford your purchases before making them and pay off the balance each month.

Bottom Line

It’s a terrific way to get freebies, from flights to gift cards, by racking up credit card points. To cash in on the benefits you’ve accrued, spend wisely once you get the card in your hands.

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