What are the Types of Credit Card Rewards?

There are three types of credit card rewards. They are points, cash back, and miles. These rewards are earned based on purchases made with the credit card. Rewards can either be earned at a flat rate on all purchases or a higher rate based on selected purchases.

Knowing the types of points is important when selecting a credit card. But it’s also essential to know how these rewards are applied when you go to use them. 

Here are some details about credit card rewards and how to use them.

Credit Card Rewards and How They Work

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Rewards credit cards let you earn points that correspond to spending. Once you've saved up some points, you can redeem them for:

• Services
• Goods
• Travel
• Money

What you can redeem them for depends on your card type. All kinds of variations affect how specific loyalty and rewards programs work.

Ensure you read the terms and conditions of any credit card you're considering.

How to Apply for a Rewards Card

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The application process for a rewards credit card is no different than a regular credit card. The card company will want to know your income and credit score. In other words, they run a credit check.

If you qualify, you'll have your card. Since the process is the same as a non-awards card, it's wise to shop around to find the card that fits your spending habits.

Earning Credit Card Points

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Credit cards have initial spending requirements before you can start earning points. They typically offer at least one point per dollar spent.

Credit card points worth are one cent each when redeemed. But, different credit cards have their own point valuation. That's because various credit card companies offer other options with different redemption prices.

For example, cash-back points may not be worth as much as travel points.

Some credit cards only reward certain purchases. Others will offer a flat rate for all purchases.

Additional Authorized User

Some cards offer extra points by adding an authorized user. But that user must spend a certain amount of money. They also must make these purchases in a specific timeframe. Once this has been done, you'll receive points.

Take Advantage of Bonus Points Offers

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There are various ways to garner points besides just everyday spending. Check with your credit card issuer and find alternative ways to earn rewards points.

Welcome Bonuses for Signing Up

These are also called sign-up bonuses. And if you find one with a lucrative welcome bonus rewards, you could have the opportunity to earn more points than what the card usually offers.

Within the first few months of opening a card, you earn extra points by meeting specific spending minimums. The time frame is usually around three months.

If you don’t spend money on your credit card before the sign-up period deadline, you lose the extra points.

Ensure you develop a plan before you open the card to help you meet the minimum requirement. Budget how much money you’ll need to spend each month to fulfill the stipulation.

Remember you don't want to carry a balance from month to month, or the interest could eat up what you would earn with points.

Some ways to spend money in this timeframe include:

• Use credit card for everyday purchases all the time.
• Pick up the tab for a group and have them Venmo their share later.
• Pay for a family vacation and have family members pay you back later.
• Pay bills including utilities.
• Make charitable donations.
• Add an authorized user.

An annual credit card fee is not applied to your spending. This is also true for any balances you transfer over. And taking cash in advance on your credit card doesn’t apply toward the welcome bonus. 

Refer a Friend

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A credit card referral bonus is used to motivate you to invite friends or family members to apply for a card. It often comes in the form of:

• Points.
• Cash-back.
• Miles.

There are different rules for a referral bonus depending on the card issuer. Some issuers personalize the offer for you. At the same time, some card companies have standard offers. But the process is usually the same.

The cardholder shares a link with their friend. The friend can use the link to apply for the credit card. Once approved, the cardholder receives the bonus.

Some companies will also reward the friend.

The average referral bonus is worth anywhere from $50 to $150. But you can earn multiple bonuses if you refer the card to many people.

But, most credit card companies have a cap on referrals for each calendar year that a cardholder can receive. This is often limited to approximately $500. Here are some credit cards that offer referral points.

• American Express – The referral points for The Platinum Card® are 30,000 points. There is no limit to how many friends and family you can refer. Once you log into your account, you’ll be given a link. You can use the same link for any number of people.
• Capital One – They will provide a personal referral link. Once your friend is approved and signs up, you’ll receive bonus points. The amount depends on which card you have. But you can earn up to 50,000 miles or $500 per year. There’s no limit on how many friends you can refer. But there is a $500 cap.
• Discover – You and your referred friend can earn statement credits. These credits are worth between $50 and $100. The friend can only earn their credits if they make a purchase with their new card within the first 90 days.

Limited Time Offer Programs Earn Points

These programs let you earn more points when buying from designated retailers. You log into your account and activate any offers. There’s also the issuer’s branded shopping portal.

Branded Shopping Portals

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You can access a shopping portal through your account or a credit card mobile app. When you purchase with an eligible store, the issuer will track it through an embedded code. You'll receive your rewards. You should have cookies enabled on your browser to track any purchases correctly.

There's no downside to using a credit card shopping portal. You not only purchase the product you want, but you receive reward points.

Many airline credit cards have shopping portals. 

Some of these include:

• Delta SkyMiles Shopping Portal – With over 1,000 retailers to choose from, the deals often change. For example, you may find that points are increased for a limited time. Often, they will run these extra points for a month, so stay vigilant.
• JetBlue TrueBlue Shopping – You must be a TrueBlue loyalty member to shop at this portal. There are hundreds of stores to choose from. Click through the portal every time you want to shop, or your points won’t apply.
• Southwest Rapid Rewards – You can choose from over 1,100 online stores. Each retailer gives a specified number of points per dollar. Many will run from one to six points per dollar spent. Check the portal periodically. Offers are offered for a limited time.

Airline shopping portals allow for double dipping. That’s because you’ll earn points from the retailer, plus points from the rewards credit card you’re using.

Anniversary Bonus Points

These points are rewarded to those who renew their card year after year. In many ways, these anniversary points are more valuable than regular points. Here are some credit cards with anniversary bonus points.

Hilton Honors Card Yearly Bonus

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The Hilton Honors American Express Aspire Card has many benefits. One of these is its anniversary perk. You receive a weekend night certificate for almost any Hilton property when you pay your annual fee. 

These properties include Waldorf Astoria and Conrads.

The downside is their annual fee is $550.

Southwest Offers Anniversary Perk

Southwest Rapid Rewards® Priority Credit Card has an annual fee of $149. When you pay this, you earn a bonus of 7,500 points.

Use Multiple Rewards Credit Cards

It’s important to have at least one rewards credit card, but should you have multiple credit cards? 

If you are responsible for managing money and paying off your credit cards monthly, this is a great way to rack up points.

That's because some cards are better for travel, whereas others are better for restaurants. But be careful; applying for too many credit cards in a short period can hurt your credit score.

Redeeming Credit Card Points

Depending on the credit card issuer, you can redeem credit card points in several ways. Although many points are redeemed for travel, there are other ways to spend points. How you redeem points can give you more value.

Make it a point to log into your credit rewards portal. There, you can see what points you have earned. Once you know this, decide whether you should use them.

Receive a Statement Credit or Cash-Back

Some credit card reward programs allow you to turn your points into cash back. They also could offer statement credit.

If you want the flexibility to liquidate points for cash rewards, this is a great option. But beware, this is the lowest value point you can receive.

Transferring Points to Hotel and Airline Partners

Some credit card companies will allow you to transfer points to a designated list of airline and hotel partners. This will often be a 1:1 ratio.

For example, you could turn 30,000 points into 30,000 Delta SkyMiles. This could be the best way to maximize credit card rewards.

Gift Cards and Shopping Portals

Many rewards programs allow you to redeem points by purchasing gift cards. This is especially great during the holiday season.

Other credit card rewards programs provide a shopping portal. You can purchase items through the portal with your points.

Redeem with Travel Purchases

Within your credit card account, you can usually redeem your points. Most credit card issuers allow you to book hotel rooms or flights using points.

Others will allow you to use points for other items like:

• Transportation
• Tours
• Travel-related activities

This is the best way to use reward points if you want value and flexibility.

Credit Cards Reward Rates and Value

A card rewards metric and value determine how rewarding a credit card is for certain purchases. When you look at credit card offers, they will often say the reward in percentages. That means a percentage return on every dollar.

It’s also important to know how that value equates to redemption.

Calculating Point Rates

The point value equals the rewards rate multiplied by the point-earning rate. For example, a credit card earning two points per dollar spent equals one cent per point.

The math would be 2X $0.01=2% rewards rate.

This is basic math, but if you have bonus categories, that changes the equation. For example, some credit cards offer three points on dining and two points on other purchases.

The formula will remain the same; the answer will just be different.

However, knowing the rates will help you determine what credit card to sign up for. For instance, if you eat out a lot, a card giving you a higher percentage on dining may be more lucrative.

How Values Equate to Redemption

You'll need to use division to determine the points value with specific redemption options. If you're booking a hotel room, divide the dollar amount of the booking by how many points you need to redeem to pay for it.

For a $300 room available for 15,000 points, your redemption value equals two cents per point.

Credit Card Cash-Back Systems

In a cash-back rewards system, the credit card issuer refunds a portion of your total purchase when you make an eligible purchase.

This can be a fixed or variable percentage. There also may be some limitations on which purchases qualify. Often, there's confusion regarding cash-back credit cards.

Earning Cash Back Rewards

There are two ways to receive cash-back rewards. The first is fixed rewards.

Fixed rewards offer a fixed reward percentage. For example, you may earn 2.5 percent back on purchases no matter what you purchased.

The second way to earn cash back is complex rewards. This is when each spending category offers a different level of rewards. 

For example, groceries and other day-to-day expenses may give you one percent back, whereas dining may give you three percent in rewards.

Complex rewards can be difficult to track.

Cash Back Expiration

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Whether your cashback will expire depends on the credit card. With some rewards programs, the cash back you earn will expire if you don’t redeem it in a predetermined time.

But other cards give you unlimited time if you still have the account.

Credit Card Rewards for Daily Spending

You may want a credit card that pays high points for everyday expenses. These regular expenses include:

• Mortgage
• Utilities
• School fees
• Groceries

The big points, travel, and dining cards, sound lucrative. But they don't do you any good if you're only using your card for ordinary day expenses.

Look for everyday credit cards that give points for every dollar you spend.

Expiration for Card Points

Most credit card companies have some points that won’t expire. But airline points usually expire after 36 months of inactivity. Some credit card issuers have adopted more generous programs with no-expiration policy.

Ensure you know your credit card rewards program rules on expiration dates.

Typically, hotel rewards expire after 12 to 24 months of inactivity. This is less forgiving than airline rewards expiration dates.

You'll need to closely monitor your hotel rewards to avoid losing them.

There are other ways you can lose reward points.

Extended Account Inactivity

The account may be closed if you stop using rewards or even the credit card for an extended period. The amount of time depends on the card issuer.

Sometimes, you can collect rewards if the credit card company provides a grace period. These usually range between 30 to 90 days.

Other programs will reactivate both the account and rewards. If you find yourself in this situation, it’s worth contacting the issuer.

Account Not in Good Standing

You must be in good standing with your account. Most card issuers require this.

If you fall behind and become delinquent on your account, the rewards may be removed. Or you may not have access to them until the account is current.

Returning Credit Card Purchases

By returning an item, you lose the points. The credit card company will take the rewards back. But you can avoid this by exchanging an item instead of returning it. The other option is asking for a store credit.

Canceled Rewards Program

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Once a rewards program has been canceled, you lose your rewards. However, some companies will give a grace period to use the rewards.

You could also transfer the rewards to another loyalty program like an airline or hotel.

Death is the End of Rewards

It can be complicated to transfer rewards after death. For example, the executor of the decedent’s estate must contact the credit card issuer or other loyalty program. The executor must provide proof of death.

If the executor doesn’t contact the issuing card, the rewards disappear.

Take Advantage of Category Spending

You earn points by making purchases. However, some credit card companies offer different point levels for different types of purchases.

You could earn more points on dining than on groceries. There could also be subcategories.

An example of maximizing bonus points with a credit card is a Platinum Card from American Express. It offers different points based on travel.

For example, by booking through American Express Travel, you can earn different levels of points. These levels consist of:

• 5X Membership Rewards spent on airline flights
• 5X points on booked prepaid hotels
• 2X points on prepaid rentals
• 1X points on general purchases.

Many other credit card issuers have similar points systems. Using your card for everyday spending will earn points. But you may earn extra points by using it for specific categories.

Know Your Credit Score When Applying

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Knowing your credit score before applying for credit cards is essential. Knowing what each card requires will save you a lot of time. 

But it won't hurt your credit score for the issuer to check it because it's considered a soft inquiry. But why waste the time with credit cards you cannot qualify for?

Different credit card companies have various credit score requirements. Here are three different issuers with varying levels of credit score requirements.

Platinum Card® from American Express for Excellent Credit

This card is for good to excellent credit. You must have a credit score between 670 and 850 to qualify. 

But it does skew toward the high end of the score. It also has an annual fee of $695. But if you take advantage of its top-tier perks, the fee could be worth it.

The welcome bonus is generous. You’ll earn 80,000 points when you spend $8,000 in your first six months.

The Platinum Card® provides more points for travel than for everyday expenses. So, if you travel a lot and have a credit score, this might be for you.

American Express® Gold Card for Good Credit

The American Express® Gold Card requires a good to excellent credit score of 670 to 850. But it will be more tolerant of the low end of that range. 

The annual fee is $250. The sign-up bonus is 60,000 points for $6,000 of eligible purchases in the first six months.

This card is best for restaurants and grocery purchases. So, if you’re a foodie who wants to earn points, take a look at the American Express® Gold Card.

Capital One Platinum Credit Card for Fair Credit

This is a great card if you have a fair credit score. It requires the score to be between 580 and 740. 

And it doesn’t have an annual fee. But it doesn’t provide points. It has one of the highest interest rates at a variable 30.74 percent APR.

The problem when you have fair credit is that you miss out on perks. You also pay high interest rates.

Finding the Right Rewards Credit Card

There are several things to look for when on the prowl for a good rewards credit card. You want a card that allows you to earn more points quickly. The more points you earn, the more, the more you can redeem.

There should also be various ways to earn points. Some of these could be:

• Buying specific brands
• Spending at certain retailers
• Completing certain actions

You also want points that don’t expire. They should last as long as you have the credit card. The exception is if you allow the account to go dormant for a specific time.

A high sign-up bonus is also an indication of a good rewards credit card.

Analyze Spending Habits

A rewards program should correlate with your spending habits. Otherwise, it’s not a good fit for you.

Ask yourself how you use your credit card. Do you only purchase:

• Gas
• Groceries
• Dining out

If you do, you need a credit card offering higher points for these everyday expenses. But it's right for you if you're an avid traveler looking for a rewards card that provides higher points for this category.

Look at the welcome bonus. If it requires you to spend $6,000 in three months, and you usually only spend $2,000, it might not be for you. That is unless you're planning a major purchase.

But you don't want to overspend just to earn a bonus, so ensure the rewards card program is right for you.

Learn the Redemption Rate

Look at the redemption and earning rate. You'll want to know how many points you need to redeem them for a reward. 

You’ll also want to know how quickly those points can be earned. Knowing the percentage of cash back you’ll receive is also critical.

Comparing Rewards Credit Cards

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The credit card business is fiercely competitive. They all want to earn your business. If you have the discipline to pay off your balance monthly, you can find a rewards program that more than meets your needs. 

There are several ways to compare rewards credit cards when looking for the right one.

High-Interest Rates

One way credit card companies can afford to pay rewards is by charging a high-interest rate. 

If you pay your balance off monthly, this shouldn't be a problem. But if you have a balance over a month or two, a high interest rate will eat away at the value of the points you earn.

Better yet, find a rewards card that offers a zero percent APR for a few months. The longer the period, the less it will cost you while you're earning points.

Tiered Rewards

Tiered rewards are different levels of rewards. The reward percentage earned is based on different kinds of purchases. Types of tiered rewards are:

• $3 for gas
• $1 for groceries
• $5 for travel

It can be a little confusing. But know your spending habits and choose a card that offers you the maximum number of rewards for what you purchase the most.

Check the Annual Fees

A large annual fee can void your earned rewards points. If the credit card has an annual fee, ensure it's reasonable. 

A $60 fee may be tolerable, but a $400 fee could break the bank and make earning points all for naught.

It’s best, though unlikely, to find a card that doesn’t have an annual fee.

Transferable Points Within Program

Check to see if the credit card has transferable points. Transferable points allow you to move the points you’ve earned from a credit card to one of their travel partners.

The benefit of transferable points is they give you flexibility in use. And since airlines and hotels have dynamic rewards values, you may be able to enjoy more value from your rewards. 

But beware, it’s also possible to lose value. Check the fine print before transferring points.

Eraser-Points or Fixed-Value Points

These credit card rewards points offer a fixed value per point or mile. They have a lot of flexibility in how you redeem your points.

One example is the Bank of America® Travel Rewards credit card. You receive a statement credit if you use your card to book any travel type and then use your rewards points within 12 months. 

In other words, it “erases” the cost of the transaction.

But there is a drawback to these kinds of programs. Transferable points can sometimes be the better option since you usually won't have to use up as many points when you transfer them to the hotel or airline's loyalty program.

Either way, you want a credit card that gives you the options.

Co-Branded Points and Cards

Co-branded credit cards will partner with a specific brand. For example, with travel, it could mean a specific airline or hotel chain.

The advantage of this is that you can redeem the points without jumping through hoops. This is a great benefit if you like and use the brand.

But, on the other hand, the reward points you earn don’t have much value if you use them for purchases other than specified brands.

Types of Credit Cards to Avoid

There are several types of credit cards to avoid. For example, you should pass on cards that have complicated redemption schemes. If they’re too complicated, you probably won’t be able to redeem your points.

A high interest rate is also a turn-off. The rewards aren't worth it if you're paying for them in interest. The same goes for high annual fees.

Some reward credit cards require a high credit score or income. And there are others that don’t fit into natural spending patterns. This is especially true if you can only use them with specified retail partners.

Reward credit cards that are seldom transferable to other programs should also be avoided.

How to Enjoy the Most Value with a Rewards Credit Card

Having the rewards card is one thing, but enjoying the benefits may not be as simple as you think. If you really want to get the most bang for the buck, there's some guidance that you should follow.

Pay Off All Balances Monthly

The interest rates on rewards cards are usually higher than other credit cards. So, it’s important to pay off your balance in full monthly.

In 2023, 61 percent of Americans carried an average of $5,875 credit card debt. If you don’t, that high interest will accrue. That added cost will negate the rewards you’ve earned.

Consider the APR Offers

Don't jump into a high-interest credit card if you plan to make a large purchase that can't be paid in full immediately. 

Instead, opt for a zero percent APR promotion. Some card issuers will give you up to 15 months of zero percent APR.

But when taking advantage of zero percent APRs, be aware of what percentage points will be charged once the promotion has ended.

Evaluate Spending Habits

Take a look at how you spend and use a credit card. If you don't travel, don't choose a card focused on travel points.

Think Before Cashing in Rewards

Think twice about how you redeem awards if you want to make the most out of your credit card. If your rewards are worth one cent per point/mile, ensure you earn at least 1:1 value.

Some incentive options will give you a higher redemption rate.

The only way to redeem your awards effectively is to know your points and their value.

Understand Point Redemption Options

Look at your credit card's terms and conditions. Know the different types of rewards they offer. If the rewards don't fit your lifestyle, that card probably won't work well for you.

Understand Expiration Dates

Ensure you use your points in the predetermined time. If it's been a while since you've used the card, just one transaction will reset the clock.

If you find that your reward points keep expiring and you have an annual fee, it might be time to review other options.

Is It Worth It to Have a Rewards Card?

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Reward points can be worth it, depending on your credit card use. The points and miles can save you money on travel expenses.

If you use a credit card for most day-to-day purchases and big-ticket items, you can rack up the points.

But there is a trap with rewards credit cards. Some can have high-interest or annual fees. These can eat any award savings away.

If you carry a credit card balance, you're probably paying more in interest than you're receiving in points. A high annual fee can also negate any awards you've earned.

But if you pay off your credit card monthly, an awards card is probably a good deal for you.

Frequently Asked Questions

Do credit card reward points expire?
Credit card reward points will generally expire if the account has been inactive for a specified period or if you have become delinquent.

How do credit card rewards work?
Credit card rewards allow you to collect points corresponding to your spending. You can then redeem the points for other services or goods.

How do you get a rewards credit card?
You apply for a rewards credit card the same way as you would any other credit card. They base acceptance on credit score and income.

Rewards Cards Provide Perks

Earning rewards to apply to purchases is great. You can earn them for travel, dining out, and general purchases.

The points will last for as long as you use your credit card. But be cautious of complicated redemption schemes or high annual fees. You also want to avoid high interest rates.

Read the terms and conditions and find a rewards credit card that works for your spending habits.

Conclusion

Credit card points can be a valuable tool for savvy spenders to earn rewards and get the most out of their purchases. 

By understanding the different types of rewards programs, earning strategies, and redemption options, you can maximize the benefits and unlock exciting travel experiences, cashback opportunities, or other perks tailored to your lifestyle. 

Embrace the world of credit card points, but always remember to practice responsible spending habits and pay your balances in full each month.