What are credit card rewards?

There are three different types of credit card rewards: points, miles and cash back. Rewards credit cards are also targeted to three main groups: students, small business owners and people with above-average credit.

Although there are differences between credit card rewards currencies and the ways in which credit card companies dole them out to different groups, the major types of credit card rewards all work pretty much the same way. You’ll earn rewards for every purchase you charge to the card – sometimes at a flat rate on all purchases, and other times with earning rates that vary by spending category. It’s also possible to earn rewards for doing things like spending a certain amount in the first few months, referring a friend or adding an authorized user.... read full answer

Co-branded cards are different from store cards, which are issued by banks but are not linked to any of the major card networks. This means store cards only let you make purchases and earn rewards with whichever retailer is associated with the card.

Types of Credit Card Rewards

Points

Credit cards with rewards points generally give at least 1 point per $1 spent. You can redeem points for hotel stays and other travel expenses, statement credits, gift cards or merchandise, depending on the card. Points cards are sometimes affiliated with hotel chains.

Miles

Credit cards with miles are travel oriented, often affiliated with a specific airline. Rewards typically start at 1 mile for every $1 you spend. Miles can be redeemed for airfare, other travel expenses, gift cards, cash or merchandise. Cards co-branded with a particular airline may reward you with seat or room upgrades, early boarding on flights, free checked bags and more.

Cash Back

Credit cards with cash back rewards return a portion of each purchase cardholders make, usually at least 1%. You can redeem cash rewards as a check, direct deposit to your bank account or statement credit, depending on the card. Some cash back rewards can also be redeemed for gift cards and merchandise through the issuer’s online rewards mall.

You’ll need good or excellent credit to qualify for the best rewards credit cards. Many also come with annual fees to offset the costs of their rewards programs. And some cards offer sign-up bonuses that require meeting a minimum initial spending requirement.

For more information, check out WalletHub’s Credit Card Rewards Guide.

You can redeem your credit card rewards online, through the issuer’s mobile app, or over the phone, depending on the card. The most common credit card rewards redemption options include cash back, travel purchases, and gift cards.

Once you redeem your credit card rewards, they’ll be subtracted from your rewards balance immediately. If you wish to redeem your rewards for a statement credit, it will generally be credited to your account within 2-3 business days, depending on the card. In some cases, rewards will expire if you do not use them by a certain time.... read full answer

Types of Credit Card Rewards

• Points: Credit cards that offer points generally give at least 1 point per $1 spent on purchases. You can redeem points for hotel stays and other travel expenses, statement credits, gift cards, or merchandise, depending on the card. Points cards are sometimes affiliated with hotel chains.
  
  Credit card points are worth an average of 1 cent apiece, depending on the card and the redemption method.
• Miles: Credit cards with miles are travel oriented, often affiliated with a specific airline. Rewards typically start at 1 mile for every $1 you spend on purchases. Miles can be redeemed for airfare, other travel expenses, gift cards, cash, or merchandise. Cards co-branded with a particular airline may reward you with seat upgrades, early boarding on flights, free checked bags, and more.
  
  Miles are worth an average of 1 cent each. The value varies based on the airline or credit card rewards program as well as how the miles are redeemed.
• Cash Back: Credit cards with cash back rewards return a portion of each purchase cardholders make, usually at least 1%. You can redeem cash rewards as a check, direct deposit to your bank account or statement credit, depending on the card. Some cash back rewards can also be redeemed for gift cards and merchandise through the issuer’s online rewards portal.

How to Redeem Your Credit Card Rewards Online

1. Log in to your online account. Specifics will vary by issuer, but your rewards will usually be featured on a main account page.
2. Click on your rewards balance. Once you click on your rewards balance, you’ll be taken to a page with more information about your redemption options.
3. Select how you’d like to redeem your rewards. You may be able to redeem your rewards for travel purchases, cash back in the form of a check or statement credit, merchandise, or gift cards, depending on the rewards card.
4. Redeem your rewards. Once you redeem your credit card rewards, the points, miles, or cash back will be deducted from your rewards balance immediately. If you’re redeeming for statement credits or covering past purchases, your account will usually be credited within 2-3 business days. If you redeem your rewards for gift cards or merchandise, you can expect them to arrive in the mail within 2-3 weeks.

While many rewards cards will let you choose from multiple redemption options, you’ll usually get the most value with one in particular. For example, travel rewards credit cards will often give you the most value when you redeem your rewards for travel purchases. Also, your rewards may be worth less if you redeem them for cash back or gift cards.

On average, credit card rewards are worth 1 cent per point or mile. Most major credit card issuers (like Chase, Capital One, and American Express) advertise that your rewards will not expire as long as your account remains open and in good standing. But you should check the exact terms and conditions of your specific credit card to make sure you don’t lose any rewards you’ve earned.

The biggest pros and cons of rewards credit cards are savings with every purchase and extra secondary benefits, on the positive side; and the potential for devaluation and earning caps, on the negative side. Rewards credit cards can be lucrative when used with precision. But they can also end up costing more than they benefit you if you pick the wrong card or carry a balance from month to month.... read full answer

Rewards credit cards are known for offering 1% to 5% back on most purchases, often supplemented by an initial rewards bonus potentially worth hundreds of dollars. Many rewards credit cards also have $0 annual fees, and some even provide the opportunity to save on finance charges with 0% APR periods.

But rewards cards have their pitfalls, too. Although cash back is straightforward to redeem, there can be a minimum redemption amount, depending on the card. Points and miles, on the other hand, have different redemption values from card to card. To add to the general confusion surrounding rewards programs, credit card companies can change the value of a point or a mile anytime they wish - and usually they don’t increase the value.

Credit card rewards can also expire based on any criteria the card issuer decides, including account inactivity, a missed payment, or simply after a certain period of time. That’s why it’s important to read the card’s terms and conditions before applying.

Biggest pros and cons of rewards credit cards:

Overall, rewards credit cards are mostly a good deal, as long as you use them responsibly by not spending more than you can afford to pay each month. It’s important to pay your bill in full every month, because any money saved in rewards can be negated easily by paying interest.

Devaluation is a problem with points and miles, too, so redeem your rewards often to decrease the chance of having them become less valuable. And if you get a rewards card with an annual fee, make sure the perks outweigh the fee.