How Do Credit Card Reward Points Work?

Some credit cards offer incentives for using their product. With each purchase, you earn points to redeem for cash, statement credits, travel discounts and more. Learn how points work and then do a cash back cards comparison to find the credit card that will help you earn great rewards.

Types of Credit Card Rewards

Not all reward credit cards are the same. The rewards typically fall into categories of cash back, miles or points. Cash back offer credit cards allow you to earn money back on your purchases. You can put the money toward your bill, redeem it for gift cards or have it deposited into your bank account. Miles credit cards are ideal for travelers because you earn reward miles for each purchase that you can use on airline tickets, hotel fees or other travel expenses. Points reward credit cards fall somewhere in between miles and cash back. You earn points for each purchase you make that you can redeem for merchandise, cash back, travel and other rewards from a catalog.

Tiered, Category and Flat Rewards

Depending on the type of credit card you have and the issuer, you can earn flat points per purchase, tiered points or points in various categories. With tiered rewards, you earn a smaller amount of rewards until you reach a certain spending threshold when the amount of points increases. Category rewards offer a higher number of points when you make purchases in specified categories, such as travel, restaurants, grocery stores and more. With flat rewards, you earn the same amount of points for all of your purchases regardless of amount or category.

Earning Reward Points

To earn reward points with your credit card, use it to make your purchases. Bonus cash back credit cards give you an incentive for spending a certain amount within the first few months of opening the account. Using your credit card for day-to-day spending makes it easy to rack up points quickly. Adding an authorized user to your account helps you earn more by getting points for all of their purchases as well. Refer friends and reach certain milestones to earn bonus points.

Using Reward Points

Using your reward points is as simple as logging into your credit card account online and looking through the reward catalog. You should see your point balance in the dashboard with a link to redeem. You may be able to turn your points into gift cards or cash right on the website, or you may be directed to a third-party site for additional reward options. Call the issuer’s customer service line if you have trouble redeeming your points.

The Drawbacks of Reward Credit Cards

Earning points for spending money sounds like a great idea. There are a few drawbacks. First, you often need to have good to excellent credit to qualify for this type of credit card. Additionally, there is usually an annual fee associated with rewards cash back credit cards, and the greater the rewards, the higher the fee. Some can cost hundreds of dollars per year to use.


While earning rewards is a terrific way to score discounts and save money, you have to keep an eye on the interest rates. If you’re not paying your bill off every month, you could lose all of that savings in the amount of interest you have to pay.