What Are Credit Card Points and How Do They Work?

Takeaways: How Credit Card Points Work

• Credit card points are rewards earned on eligible purchases and redeemed for options such as cash back, gift cards, merchandise or travel.
• Point values vary by card and redemption method. To calculate the value per point, divide the dollar value of a reward by the number of points required to redeem it.
• Compare the APR, annual fee, rewards categories, redemption restrictions and benefits across cards to see which one is a good fit for your spending habits.
• Rewards generally provide the most value when you pay the statement balance in full and on time each month.

With some credit cards, you can earn points on eligible everyday purchases. When you use the card, you get a set number of points for the money you spend. These cards often give you bonus points for specific categories such as dining, travel, online shopping or groceries.

You can use your points according to the card issuer's rules. For example, you might exchange the points for cash back, gift cards, merchandise or travel bookings. Points cards can be a good fit if their rewards match your spending habits and your financial goals, and you can pay the statement balance in full and on time each month.

“Points cards have increased value for those who want the ability to redeem for a variety of different options including flights, hotel stays or gift cards,” said Pierre Charles, director of product management for BECU credit cards. “They provide flexibility in terms of the redemption experience, particularly if someone isn't beholden to a single loyalty program.”

Points cards can also have trade-offs. Some have annual fees you may not see with cash-back cards or low-interest-rate cards. If you carry a balance, interest charges could outweigh the value of any rewards you earn. You'll also need to consider your credit score, since premium cards usually require good-to-excellent credit.

Types of Points Cards

Various issuers offer credit cards with flexible points programs, including banks, credit unions and other financial institutions. They also partner with hotels, airlines, retailers and brands. Here are a few different types of cards:

• Flexible or transferable points cards: Cash out points to your financial institution account, use points for travel spending or transfer them to airline and hotel partners.
• Co-branded travel cards: Earn miles or points with one specific brand. These cards may offer extra perks like an annual free night at a hotel.
• Store cards: Earn more points at one retailer, usually with limited options to use the points elsewhere.
• Business cards: Point categories are tied to business spending, like advertising, shipping or office supplies.

Some of these cards come with additional benefits such as rental car coverage or purchase protections, subject to the card's terms, exclusions and eligibility requirements.

How To Earn Credit Card Points

You can earn credit card points in several ways.

• Everyday spending: Earn rewards with routine bills, grocery purchases and other everyday expenses. Most cards earn a basic 1 to 1.5 points per dollar on everything you buy, and some cards give two points per dollar spent.
• Accelerator categories: Many points cards give you extra points for spending in specific categories such as dining, travel, streaming services, and more.
• Sign-up bonuses: Points cards often offer point bonuses when you get the card and spend a certain amount within a set time period, such as three months. You must hit the spending requirement in full to get the bonus.
• Shopping portals: Card issuers, airlines, and hotels often run online shopping portals that may reward you with extra points for clicking through to a clothing, furniture or other online merchandise retailer.
• Card referrals: Many cards give extra points for each friend you refer to the card, if they're approved, up to an annual limit.
• Travel portals: Some card issuers offer online travel portals for booking airfare and hotels, where you may earn extra points.
• Special dates or promotions: Issuers sometimes run deals (such as offers to earn three times or five times the base points) if you activate a deal online or receive extra points on your card anniversary.

How To Redeem Credit Card Points

“People understand how to earn points, but redeeming them may require more effort,” Charles said.

Typically, you'll redeem points through your card issuer's website or app, where the rewards section shows your points balance and available redemption options. Note that if you close the card, you might lose access to unredeemed points.

Redemption options and the value you get per point varies widely.

• Direct deposit or statement credits: Convert points into a statement credit or a cash deposit into your financial institution's account. Some cards require you to meet a minimum amount, while others may allow statement credits only for specific transaction types, such as travel.
• Book travel or experiences through the card issuer's online portal: Search for a flight, hotel, event or cruise, see the price in both dollars and points, and check out using points, cash or a mix.
• Transfer to airline and hotel partners: Cards with flexible points programs let you move points to the card's airline miles or hotel partners. Points may go further when transferred to an airline or hotel partner but can require significant work on your part. Transfers usually can't be reversed, so confirm the seat or room is bookable and within your award budget before moving points over.
• Shop with points: You may be able to convert points to gift cards for stores and restaurants, with different conversion rates. Some cards allow you to pay online stores at checkout or shop through rewards catalogs.
• Give to charities: You may be able to donate your points (which convert to cash) to participating nonprofit organizations.

How To Calculate Point Values

The value of a point varies widely by card and how you redeem it. So, "100,000 points" isn't a fixed dollar amount. With some cards, that number might be worth $500, while with another, it might be worth $1,000.

You can calculate the value per point by dividing the cash price by the points required. If a $400 flight costs 20,000 points, each point is worth $0.02. Many personal finance websites crunch numbers to compare different point systems. A common benchmark is $0.01 per point, but the value varies by card and redemption method.

The value of the points depends on the type of card, purchase category and redemption method. Compare the dollar value of a redeemed reward with the number of points required.

Points don't have a guaranteed value, and programs may devalue them by changing redemption rates, promotional conditions or other terms. Review the program terms before redeeming or transferring points. If you plan to close a card, find out whether you need to use or transfer your points by a deadline so you don't lose them.

How To Choose a Points Card

When you compare credit cards, consider each card's costs, terms and benefits and how you expect to use the rewards:

1. Review your spending: Look over the past few months for common categories, whether travel, dining, groceries or a mix. If you eat out often, you might choose a points card that rewards dining. If you enjoy travel, you might look for a card with transferable points or points you can use for hotel stays.
2. Calculate the annual fee: Estimate what you'd earn in a year with the card, add the value of any card credits or perks you'd use and subtract the annual fee.
3. Weigh the sign-up bonus: If you're offered a sign-up bonus, ensure you can avoid stretching your budget just to hit the target spend amount.
4. Read the program terms: If you travel abroad often, look for a card with no foreign transaction fees. Also make sure you understand whether points expire and how easy they are to redeem.
5. Plan for paying the balance in full every month: Interest charges will quickly outpace any cash back or points value you earned.

“Premium cards with an annual fee require a lot more diligence and introspection,” Charles said. “Ask yourself, ‘Will my usage justify this?'”

FAQs About Points Credit Cards

What Is the Best Thing To Do With Credit Card Points?

The best thing to do with credit card points is to use them for something you'd buy anyway — or perhaps even a splurge that might be out of reach otherwise, such as a luxury hotel.

What Is the No. 1 Rule of Credit Card Points?

Rewards generally provide the most value when you pay the statement balance in full and on time each month. Otherwise, a great points card might return the equivalent of 1.5% to 2% on your spending. Credit card interest rates can run above 20%, so interest rate charges can outpace the value of rewards. BECU members who want help reviewing their spending or debt can schedule a free Financial Health Check.

Are Credit Card Points Worth It?

Credit card points can be worth it if the card's costs, earning categories and redemption options fit your spending habits. Also, those rewards may not offset the interest you pay if you carry a balance from month to month. A caveat: In the U.S., how a reward or bonus is earned can affect how it is taxed. Certain banking bonuses can be treated differently, so check with a tax professional if you're unsure.

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