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I don’t remember the last time I paid for something using a debit card.
Why?
Because my debit card doesn’t give me the incredible rewards — like money back in my pocket and essentially free flights — that my favorite cash back and travel credit cards do.
That said, earning, spending, and maximizing credit card points can be overwhelming, and this is particularly true if you’re new to all this.
So we put together this handy introduction to how credit card points work (for newbies).
Let’s start with understanding the four kinds of credit card rewards programs out there before we get into specific programs.
Table of Contents
4 Kinds of Credit Card Rewards
Most credit card rewards programs fall into one of four general categories. They are:
- Cash back cards
- Points cards, also known as general travel cards
- Hotel cards
- Airline credit cards
Knowing the categories is the best way to understand how credit cards work. You’ll learn lots more details on each of these categories below.
1. Cash Back Rewards Cards
A cash back rewards card is one that offers cash back as a percentage of purchases. Most cash back cards offer higher rates on certain categories.
With a card like the Blue Cash Everyday Card from American Express, you earn 3% cash back at U.S. grocery stores. You then earn 2% cash back at U.S. gas stations and qualifying U.S. department stores, and 1% on everything else.
Another example of a cash back card is the Citi Double Cash, which gives you unlimited 2% cash back on all purchases.
Cash back cards are simple and flexible. You don’t have to think about valuing points or how to redeem them.
Instead, you simply get money back for the purchases you make. With cash back cards, the card issuer can’t devalue your rewards like they can with cards that earn miles or points.
2. Points or Travel Cards
Another way to earn rewards for credit use is to find a card that earns points. You then redeem those points for a variety of rewards.
However, the most lucrative rewards you can redeem your points for is usually for travel. For that reason, some people refer to points cards as travel cards.
But, points-based credit cards can be tricky because they often limit how you redeem the points you earn. Also, the company can devalue your points.
3. Hotel Credit Cards
A hotel credit card earns points, too. But, you can only redeem your points for hotel stays through a particular brand of properties.
You might also be able to redeem points for things like room upgrades.
With a hotel credit card, you usually get the most points when you spend at the hotel itself.
4. Airline Credit Cards
An airline credit card is one that helps cardholders earn miles for flights. They are typically issued by a bank and co-branded with a particular airline.
Similar to hotel credit cards, you’ll typically get the most rewards when you use your credit card for the particular co-branded airline.
3 Ways to Earn Credit Card Rewards
No matter what kind of credit card you have, how you earn rewards tends to be similar across the board.
Here are the three main ways to earn points.
1. Make everyday purchases.
The simplest way to earn rewards with your credit card is simply by using it to make purchases you would anyway. You earn rewards on each dollar you spend.
Some people use their credit card for everything and then pay the balance in full each month.
That way, they earn rewards without having to pay interest on a balance. With this approach, it’s like using a debit card, but with rewards.
2. Get a sign-up bonus.
Offering large sign-up bonuses is how card companies market their product and attract new account holders.
If you meet an initial spending threshold, usually within three months of opening a new account, you’ll get a lump-sum of points, miles or cash back.
For example, there’s a sign-up bonus currently with the Capital One® Venture® Rewards Credit Card right now.
If you spend $3,000 in purchases within your first three months of opening your card, you’ll earn 50,000 miles (redeemable for $500 in travel) in addition to your normal rewards on everyday spending.
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Welcome Offer
75,000 PointsWith $4,000 spend within first three monthsAnnual Fee
$95Rewards
2X MilesYou earn two miles on every purchase.3. Refer your friends.
Some rewards credit cards offer points or cash back when you refer other people to sign up for the card. Also, some will give you rewards when you add an authorized user to your account.
Redeeming Credit Card Rewards
When it comes to the valuation of credit card rewards, there are miles, and then there are points or cash back.
Redeeming Cash Back
How you redeem your cash back rewards varies depending on the credit card. Many card issuers apply it automatically as a statement credit.
But some cash back goes into a rewards account. Then it’s up to the cardholder to redeem it.
In this case, you would log into your online account and request your cash back.
Most card companies will let you request how you’d like to receive your cash back if they don’t apply it as an automatic statement credit. Examples include receiving it as a check or a direct deposit into your bank account.
Some cash back programs also let you automatically transfer cash back into a savings account.
Redeeming Travel Points
Points tend to offer more flexibility for redemption and they usually have a set value. You can redeem your points for merchandise or different types of travel purchases.
The value of points might vary depending on how you redeem them, too. For example, using a card directly through an airline or through the card company’s portal may have an effect on redemption.
Remember, if you earn rewards on a credit card, be aware of the potential for devaluation.
Since the card issuer determines how many points you earn, they can devalue your credit card points for any given option. If a card issuer decides to charge more for something, then the points will go down in value.
Cash is different because it’s a value on its own, so card companies can’t devalue it. If you have a card that earns points rather than cash back, consider redeeming them frequently to avoid potential devaluation.
Redeeming Hotel Points
To use hotel points, you can usually book reward stays by searching the available rooms and nights through the hotel’s travel portal. For example, with Hilton Honors Points, you can complete a reservation form, and then opt to use Hilton Honors Points.
You’ll then see what’s available in the hotel you’re looking at. Each room listing will show how many Hilton Honors Points are necessary to book.
You’ll also see the regular room rate. The number of points required to book a room depends on the property itself, the location, and the type of room.
With some programs, including Hilton Honors, you can choose to combine points and cash to book a room without blackout dates.
Redeeming Airline Miles
Miles are usually for a certain airline and that airline’s partners. There isn’t usually a set value for miles.
However, the only way you can redeem them is by buying airline tickets through the issuing airline and their partners.
Credit card miles can be tougher to get the most value out of and to redeem. But for frequent travelers or travelers loyal to one airline, it can be worth it.
How to Maximize Your Rewards
Once you have some experience with how credit card points work, you may discover some useful tricks to maximize your earnings.
For example, some credit card programs let you transfer points to a group of partners. Then at that point, you can redeem them for reward hotel stays or flights.
This way, you’re getting the most bang for your rewards buck, and you’re paying significantly less than you would in cash.
There are other strategies you can use to maximize your rewards, especially if you use multiple cards. If you have good credit, find the card that offers the best earnings rate in the categories you spend the most on.
Let this be your main card, and then find a card that has a competitive introductory bonus.
A word of caution: if you don’t have good credit or you typically carry a balance on your credit cards, rewards shouldn’t be your priority.
Your focus should be on finding a card with no annual fee and perhaps a 0% APR. Never overspend to meet the requirements for a sign-up bonus or to earn points.
Pairing Credit Cards
One of the best points-earning strategies is to pair cards.
For example, maybe you have a card that gives you 5% cash back on supermarket shopping, but 1% on everything else. Use that card exclusively for groceries, and then find a card with rewards from 1.5 to 2% for everything else.
Some travel rewards cards, like the Chase Sapphire Preferred card, let you transfer points to another loyalty program.
If you have Ultimate Rewards points with a value of approximately 1.25 cents each for travel through the Ultimate Rewards portal, you can raise that value. Just transfer your points to a partner program like the United MileagePlus program.
But before you try this strategy, make sure you’re clear on the transfer ratio. Also, while cards with transferable points offer flexibility, they link to your credit account.
So, if you close your account, you lose your points. However, you can transfer them before closing to avoid that.
Bonus Categories
If you have a card that has rotating bonus categories, be sure to keep up with them.
Most cards don’t include automatic enrollment in these categories. That means you’ll need to opt-in each quarter or whenever they make changes to maximize your reward-earning potential.
Popular Rewards Platforms
Now that you understand the basics of how credit card points work, here are some of the most popular credit card rewards platforms.
Chase Ultimate Rewards
If you have a Chase-branded card that’s not co-branded, you can earn Chase Ultimate Rewards. You can redeem Chase Ultimate Rewards for cash back, travel and gift cards as well as Amazon and Apple purchases.
Chase Ultimate Rewards Points are usually worth anywhere from 1 to 1.5 cents. The value depends on the card you have and what you’re using your points for.
For instance, if you use your points for Amazon purchases, you could see a lower value at around 0.8 cents per point. However, if you have a card like the Chase Sapphire Reserve and book travel through the Chase online portal, you’ll get 50% more redemption value.
Also, if you have the Chase Sapphire Preferred card, you can get 25% more value for booking travel through the Chase portal.
Capital One Miles
Capital One Miles have a reward value that’s around one cent when you redeem for travel.
But, if you redeem miles for cash back, you’ll get a lower redemption value. It can be more challenging to determine the value of your Capital One Miles if you redeem for travel through a partner airline.
If you earn Capital One miles, they transfer to airline partners at a rate of 2 to 1.5.
Citi ThankYou Points
Another reward point program is the Citi ThankYou points program. You can redeem Citi ThankYou Points for travel, gift cards, statement credits and cash back.
Also, you can redeem them for merchandise, charity, and even making payments on a student loan or mortgage.
The average valuation of ThankYou Points is around one cent each, with exceptions. For example, if you redeem points for airfare through the ThankYou Travel Center, you’ll get a redemption value of 1.25 cents each.
On the other hand, if you redeem your points for cash back, you’ll only see a value of around 0.5 cents per point.
Amex Membership Rewards Points
American Express Membership Rewards points have great value and are relatively easy to earn. You can usually get a redemption value of anywhere from 1 to 5 cents with Amex Membership Rewards Points.
As with many other cards, using Amex Membership Points for cash back isn’t the best way to get the most value.
You’ll usually get around 0.6 cents per point for a statement credit. But, if you book airfare through Amex Travel, you’ll get a ratio of 1 cent per point.
With the Amex Business Platinum Card, you can also get 35% of your points back when you book on amextravel.com.
Amex Points range in value from 0.4 to 7 cents each for transfer partners. There’s a 1:1 transfer ratio with airlines like British Airways, Delta, Emirates, Virgin Atlantic, and quite a few others.
With some Amex cards offering 8 to 10% cash back on purchases in some categories, you’re also getting quite a bit of value.
While it can get complex, a general rule of thumb is that 1 point is around a 1-cent value, but that’s not always true.
That’s why it’s important to understand the value of a point or mile before you start earning them on a card. That way, you can ensure that it’s going to be of value to you.
Hilton Honors Points
If you’re loyal to one particular hotel brand, look for a co-branded hotel card, such as the Hilton Honors American Express.
You may find there are some extremely high sign-up bonuses with hotel co-branded cards. However, they often inflate these points, including Hilton Honors Points, which is something to be aware of before signing up.
Hilton points are usually around 0.5 cents per point, well below the average one-point-to-one-cent value of most other programs. All hotel loyalty programs have some level of inflation, but the Hilton Honors program is even more inflated than Marriott points.
But, a Hilton Honors card can be a good option for some people.
The point is, you may have to dig a little to find rewards rooms that are going to be worth it to you. For example, at peak demand times, reward rooms are more expensive.
| Points Equivalent | Redemption Options | Points Expiration | Transferable Points | |
|---|---|---|---|---|
Chase Ultimate Rewards | 1 – 1.5 cents 0.8 cents per point for Amazon purchases If you book travel through the Chase online portal, you’ll get 50% more with Chase Sapphire Reserve and 25% more with Chase Sapphire Preferred card | Cash back, travel, Amazon and Apple purchases, and gift cards | Points don’t expire as long as your card is open. If you cancel your account, you’ll lose unredeemed miles. | Yes |
Capital One Miles | 1 cent when redeemed for travel < 1 cent for cash back 1 point = 0.75 point if redeemed for travel through a partner airline | Travel purchases | Do not expire as long as your account is in good standing. If you close your account, you will lose any rewards that have not been redeemed. This applies to miles rewards and cash rewards. | Yes |
Citi ThankYou Points | 1 cent each with exceptions 1.25 cents per point if redeemed through ThankYou Travel Center for airfare 0.5 cent per point if redeemed for cash back | Travel, gift cards, statement credits and cash back, merchandise, charity, and making payments on a student loan or mortgage | Expire three years from the end of the year in which they are awarded to you. | Yes |
American Express Membership Rewards Points | 1 – 5 cents with Amex Membership Rewards Points. 0.6 cent per point for statement credits 1 cent per point through Amex Travel. 35% of your points back when you pay with points and book a first-class or business-class flight with Amex Business Platinum Card 0.4 – 7 cents each for transfer partners, 1:1 transfer ratio with airlines like British Airways, Delta, Emirates, Virgin Atlantic, and quite a few others | Travel, gift cards, statement credits, points with transfer points including hotels and airlines, shopping, donations to charity | Do not expire, as long as you meet certain conditions. However, there are instances where you could lose your hard-earned Amex points | Yes |
Hilton Honors Points | Usually around 0.5 cents per point, 1 cent per point for some other programs | Travel, gift cards, statement credits, points with transfer points including hotels and airlines, shopping, donations to charity | Do not expire as long as Members remain active in the program. To keep an account active, Members can stay at one of Hilton’s hotels, or earn or redeem Hilton Honors Points within 12 months. | Yes |
3 Little-Known Ways to Redeem Credit Card Points
While most people know they can redeem their credit card points for statement credits or for travel directly on the credit card company’s site, here are some other ways to consider using your credit card points.
1. Use Them on Amazon and Possibly Snag a Discount
2. Invest Them
3. Transfer to Travel Partners for Upgraded International Flights
The Best Rewards Cards to Get You Started
If you’re ready to start earning points, miles, or cash back, some cards are a good option in their simplicity.
They offer low annual fees they pair with the rewards. Be sure you know exactly how credit card points work before you choose a credit card.
Also, consider your spending habits carefully. They are as follows:
Amex Blue Cash Everyday
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- Basics: The Amex Blue Cash Everyday Card currently offers an introductory APR of 0% on purchases for 15 months. Earn 3% Cash Back at U.S. supermarkets up to $6,000 a year, 2% Cash Back at U.S. gas stations and department stores, and 1% Cash Back on all other purchases. There’s no annual fee and cash back is received as Reward Dollars that can then be redeemed as a statement credit. Terms Apply.
- Welcome Offer: The American Express Blue Cash Everyday earns $200 back with $2,000 spend within the first six months from opening the account. Terms Apply.
- Bottom Line: Overall, the AMEX Blue Cash Everyday provides significant rewards on everyday spending categories with no annual fee. Terms Apply. (See Rates and Fees)
Capital One Venture Card
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- Basics: Capital One Venture card gives you two miles per dollar spent on the card. Each point is worth 1 cent each when you redeem for travel through Capital One, making your return 2%. The annual fee is $95.
- Welcome Offer: A sign-up bonus of 75,000 miles when you spend $4,000 in purchases in the first three months of opening an account. This is equal to $600 in travel, and you earn 2X miles on all purchases. With Capital One Venture card, if you redeem for cash, however, the value is half what it is for travel.
- Bottom Line: This card is a great credit card for those who value simplicity when it comes to rewards, but at the end of the day you're getting 2% rewards with a $95 annual fee and no foreign transaction fee.
Citi Double Cash
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- Basics: This card gives you 2% cash back with unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases. It has no annual fee. There’s no limit to the cash back you can earn, and there are no rotating categories to worry about. LIMITED TIME OFFER -- Earn $200 cash back after spending $1,500 on purchases in the first 6 months of account opening.
- Introductory APR: 0% introductory APR for 18 months.
- Bottom Line: If you're looking for a no-frills cash back credit card, the Citi Double Cash is tough to beat, offering an unlimited 2% back on every purchase.
Chase Sapphire Preferred
- Basics: If you’re interested in travel-related rewards, the Chase Sapphire Preferred Card is an excellent option. Earn 5X points on travel through Chase Ultimate Rewards(R), 3X points on Lyft rides until March 2022 and 3X points on dining, 2X points on other travel purchases, and 1 point per dollar on everything else. Redeeming through Chase Ultimate Rewards will get you 25% more value on travel purchases including airfare, hotels, cruises, and car rentals. No foreign transaction fees but the card carries a $95 annual fee.
- Welcome Offer: Earn 80,000 points when you spend $4,000 on purchase in the first three months. If you redeem that bonus through Chase Ultimate Rewards, it’s worth $1,000.
- Bottom Line: If you fly at least a few times a year and enjoy earning credit cards rewards in the form of free travel, the Chase Sapphire Preferred Card is a great card. However, with an annual fee of $95, this card may not be for everyone.
Chase Freedom Unlimited
- Basics: Chase Freedom Unlimited earns 1.5% unlimited cash back on all purchases, and you can maximize the value if you also use a Chase Ultimate Rewards card. 0% APR for 15 months on purchases. There is no annual fee but comes with a 3% foreign transaction fee. Earn 5% on travel purchased through Chase, 3% on dining at restaurants and drug stores, and 1.5% on all other purchases.
- Welcome Offer: There’s a $200 bonus on $500 on purchases in the first three month from account opening.
- Bottom Line: The Chase Freedom Unlimited is an excellent card on its own, but it's even better as a companion to other cards that earn Chase Ultimate Rewards points.
Frequently Asked Questions
The following are a few questions people often ask about credit card rewards and points.
- How are points’ values calculated?
- Which type of travel card is best?
- Is a cash back card better than points?
- Are there limits on rewards?
- Do rewards expire?
The Takeaway on Credit Card Rewards Programs
Credit card rewards program can be a valuable way to earn points, miles or cash back.
But, you have to be careful about the card you choose. Be sure you understand how credit card points work.
Think about your current spending habits and decide what would work best for your lifestyle with regard to redemption purposes. Remember, never put yourself in a precarious financial situation just to earn rewards on a credit card.
To see the rates and fees for the American Express cards featured, please visit the following links: Blue Cash Everyday ® Card from American Express: See Rates and Fees
Author:
Ashley is a graduate of UNC-Chapel Hill where she studied journalism. She has worked as a journalist, content creator, and copywriter for nearly a decade, with a focus on personal finance, real estate, and healthcare. She now lives in Knoxville with her husband and young kids. During her free time, she enjoys traveling and enjoying the outdoors in East Tennessee.
Reviewer:
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.
