What Are Credit Card Points, How Do They Work, And What Can You Buy With Them?
When you decide to sign up for a new card, you’ll likely hear talk about rewards and benefits for users of that specific card. These reward programs are typically based on points, which credit card holders can then redeem for various prizes.
These points can prove extremely valuable if you use them properly; in fact, some people have turned making the most of these programs into their primary source of income and succeeded in living the high life. Our answers to the questions “What are credit card points?” and “How do they work?” will be detailed enough for you to understand fully how to benefit from such opportunities.
These points aren’t just a marketing trick. Think of it this way: The bank rewards you for using its credit card to make necessary purchases, because every time you swipe a card, the merchant pays a bank fee. It’s one of the ways banks earn money, and these excellent reward programs could be viewed as their way of saying thank you. Let’s see how you can take advantage of the bank’s gratitude in the real world.
What Are Points On A Credit Card?
The easiest way to explain points on a credit card would be to say that they are among the three most common types of credit card rewards. The other two types are cashback rewards and travel miles. Credit card holders typically earn these points without even noticing with every credit card purchase, and can later redeem them for discounts, rewards from the members of the credit card issuer’s partner network, or other perks.
Since this is a very broad explanation, let’s get into more detail, with examples of how these points work.
So, How Do Credit Card Points Work?
To answer this question correctly and provide you with information you can put to good use, we’ll go through what to look for when signing up for a card with a reward points program, how you can earn them, and what you can use them for.
When applying for a card with a rewards program, it’s essential to check whether the spending habits needed to earn these points match yours. For example, if you are scared of flying, choosing a credit card with a miles-based rewards program might not be the best idea.
It will likely be challenging to estimate the value of your credit card points and whether a card would be a good fit for you before you become a cardholder. Still, getting familiar with all of your options before selecting your next credit card is vital. Often, you can find rewards-rate examples available on card-issuer websites. If there aren’t any, consider giving them a call.
Also, you can always dig deeper on the internet to find reviews with the insight you need. For example, if you prefer a card that will reward you for traveling, check out reviews for travel-focused credit cards - they will likely mention the rewards program.
How To Earn Reward Points On Your Credit Card?
There are several ways to earn reward points on a credit card, depending on the issuer. Some of the most common ways to earn these points are the following:
Typically, you could be earning a point for every dollar you spend at specific locations, or anywhere at all. This is the most common method of accumulating points with credit cards. But there are also more specific options - if you use a credit card for dining out, you’ll get bonus points every time you pay for a meal.
Sign Up, Authorize Another User, Or Refer A Friend
Credit card companies appreciate new users and your help in gaining them, too. A credit card company will often reward you - the new cardholder - with an impressive amount of credit card points from the get-go. You’ll likely have to “unlock” the benefits of credit cards with an excellent sign-up bonus by making an initial purchase or meeting some other spending requirements within a specific timeframe.
You will likely get additional points if you authorize another user, or a friend uses your referral link to sign up at the bank and spends the required amount.
Banks often give out bonus points on your birthday or account-opening anniversary to thank you for being a loyal customer. Some will reward you for hitting particular milestones, too, such as making a specific number of monthly purchases or spending a certain amount in a year.
What Are Credit Card Points Used For?
Depending on the type of points you collect, there are several ways to spend them and different rewards to redeem. Here are some of the most common ways you can use these points:
- Travel - Often, you will be able to trade your points for hotel stays, airfare, cruises, and more. Travel credit cards allow for a much cheaper vacation, either by helping you book a more affordable option up front, or wiping some things off your bill when you return home.
- Cash back - Cash back is one of the most common uses for points, and some may even argue that cashback should the only answer to “What are credit card points good for?”. Many people don’t see the point of the other reward options on this list. If you prefer getting checks in the mail, you need a cashback credit card which will give you the highest returns on your points and purchases.
- Gift cards - Depending on whether or not the bank has a partnership with some retailers, you might be able to get gift cards in exchange for your points.
- Third-party sites - many banks offer to let you use your credit card points to shop on Amazon, for example, pay for Uber rides, or use them to lower the price of other services.
- Charitable donation - You can also put your points to a noble use and donate them to a charity. Make sure to check the reward rate for this option with your bank. Unfortunately, points might not be worth much in this case, so it might even be better to redeem them as cash back and then donate the money yourself.
What Is The Average Value Of Credit Card Points?
The answer boils down to differences in point redemption rates between banks, which is why it is good to inform yourself about redemption prices before you start earning them in the first place. A particular card might get you plenty in gift cards, but less in travel miles; another might offer the best cashback rates.
For example, if you want cheaper flights, travel cards are the way to go. However, make sure to check the rewards rate, because the bank might have a better cashback deal, which you can then use to purchase any future tickets. In other words, if your question is “How much are credit card points worth in real money?” every card offers a different answer.
Generally, a single point is worth a single cent. However, the actual point value typically depends on how the points are spent. Knowing how much your points are worth for particular purchases can make a significant difference in how much you benefit from spending them.
We’ll use Citibank’s ThankYou Rewards program to help you realize how the value of these points changes according to purchase type.
- Travel redemptions: 1 point = 1 cent
- Amazon purchases: 1 point = 0.8 cents
- Cashback statement credit: 1 point = 0.6 cents
How To Redeem Credit Card Reward Points
You’ll likely have to use your credit card account to redeem these points. Upon logging in, you should be able to quickly navigate to the rewards section, where you can check how many points you have and their redemption options. Occasionally, the bank will have a separate website set up for rewards programs, so make sure to ask your issuer where you can redeem your points when you sign up for a credit card.
All in All
The better you understand how your points work, the more rewards you’ll get. Picking the right card to match your lifestyle and shopping habits so that you don’t have to go the extra mile to earn credit card points is half the job. The other half is spending the points wisely - redeem them for prizes that have the most significant value to get the full benefit of your credit card’s reward program.
The answer depends on your credit card’s reward program and what you intend to use your points for. With some cards, you’re certainly better off with points, as the cashback value is not as favorable as the benefits you can get by earning credit card points. Still, if you don’t have any use for the points other than redeeming them for cash, then yes - cash back is better than points.
Typically, all you have to do is log in to your credit card account and go to the rewards section, where you will find the option to convert points to cash if your bank allows the cashback option. Sometimes, banks will also have a dedicated website for converting points. If you can’t find the right address for that, contact your issuer’s customer service line.
On average, one point is close to one cent in value, but this mainly depends on what you spend the points on. If your reward program favors travel, your points will be worth more when covering travel costs. With other banks, you might be better off taking cashback checks.
Albert Einstein is said to have identified compound interest as mankind’s greatest invention. That story’s probably apocryphal, but it conveys a deep truth about the power of fiscal policy to change the world along with our daily lives. Civilization became possible only when Sumerians of the Bronze Age invented money. Today, economic issues influence every aspect of daily life. My job at Fortunly is an opportunity to analyze government policies and banking practices, sharing the results of my research in articles that can help you make better, smarter decisions for yourself and your family.
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