How do credit card points work?

If you’re new to bonus credit cards, you’re probably wondering how they work. How are credit cards with points different from cashback credit cards? How do you earn rewards with a points-based credit card?

Here’s what you need to know about how credit card points work before you apply.

What are credit card points?

Many of today’s best credit cards offer points. Points are a form of reward that you earn for every dollar spent. While the base rate for points may be 1 point per dollar spent, many cards offer 2X, 5X, or even 10X points for spending in certain categories.

Points can be used for everything from travel bookings to charitable donations, not to mention credit statements, gift cards, online shopping and more.

How credit card points differ from cashback

Credit card issuers offer two main types of credit card rewards – points or cashback. If your credit card is a travel card that earns points or miles, you earn a certain amount of points or miles with every purchase.

If you have a cashback credit card, you earn a cashback percentage on every purchase. Cashback is usually provided in the form of a credit statement, although some issuers allow you to redeem cashback as a direct deposit or as gift cards.

How do you earn credit card points?

There are many different ways to earn credit card points. Some cards, such as the Capital One Venture Rewards credit card and Discover it® Miles, offer fixed points for every purchase. Others, such as the Chase Sapphire Preferred Card, offer different levels of points depending on the type of purchase you make.

Some credit cards are specifically designed to encourage certain types of spending. A travel credit card, for example, offers extra points or miles when you shop for travel. An airline credit card rewards purchases made with a specific airline. Points earned with these types of cards can often be extremely valuable and can save you money on future travel bookings.

One of the best ways to earn reward points is to take advantage of the sign up bonus on a new credit card. Most of the best credit cards offer signup bonuses to new cardholders, and the best credit card signup bonuses offer many valuable reward points. You can earn from 20,000 to over 100,000 points by reaching a certain spending threshold in the first few months.

There are other bonuses that can bring significant rewards. Some credit cards offer bonus points after the cardholder reaches a certain milestone, such as the dollar amount spent on the card or the anniversary of the account.

You can also earn referral bonuses by convincing friends or family members to sign up. Log into your credit card online account or mobile app to see if you can earn extra credit card points through referrals.

How much do credit card points cost?

In most cases, a point is worth 1 cent. This means that 100 credit card points are worth $1 and 10,000 credit card points are worth $100. (Not all credit card issuers adhere to the 1 cent per point target, so read the fine print on your credit card to know exactly how much your points are worth.)

In some cases, the value of your credit card points may increase or decrease depending on how you use them, so it is important to understand exactly how your credit card points can be used and how redemption options affect the value of your points.

With some travel cards, you can increase the value of your points if you book through the issuer’s travel portal. For example, the points you earn through the Sapphire Preferred program will increase in value by 25% when you use them to book travel through the Chase Ultimate Rewards portal.

Where should you start?

The best rewards credit cards give you the opportunity to earn cashback, points or miles on every purchase. If you want to maximize your credit card scores, look for a card that rewards the type of spending you make the most.

For example, if you buy a lot of groceries, it makes sense to apply for a credit card that rewards grocery purchases. Depending on your daily spending habits, you may also want to consider using a bonus card for gasoline purchases or a card for online shopping. Choose a credit card that suits you and your expenses.

Are credit card points expiring?

In most cases, credit card points do not expire while your account is active. However, you can lose credit card points if you miss a payment or misuse your account, so make sure you have responsible credit habits.

It’s also worth noting that credit card issuers may change the terms or the value of your credit card rewards at any time. That is why it is recommended to use your rewards as soon as possible. While accumulating points for a large purchase is also a good practice, don’t leave rewards permanently in your account or you risk losing the prize you’re aiming for.

bottom line

Credit card points are a great way to earn rewards for spending you’ve already made. Most reward cards are designed for travelers, allowing them to earn generous travel rewards and often offer higher redemption rates for trips booked through the issuer’s portal.

Take the time to find a card that matches your essentials, whether you’re already on the road or using day-to-day expenses to earn points for a vacation that can’t come soon.

Nicole Dicker is a freelance writer specializing in personal finance and habit formation. She spent five years as a writer and editor on The Billfold, a personal finance site where people talk candidly about money, and she regularly teaches classes on how to increase your income as a freelancer.