A Beginner's Guide To Credit Card Points

Photography by Getty Images; Illustration by Bankrate

Key takeaways

Credit card points are a type of rewards currency that you can earn in exchange for eligible credit card spending.
To earn boosted points on your credit card, you’ll need to maximize bonus category spending, earn any available welcome bonus and take advantage of promotional offers.
To get the most value from your points, redeem them for high-value options like travel or points transfers to airline and hotel partners.

Credit card rewards are highly valuable but can be daunting: There are lots of details to track, from which types of purchases earn the most points to which redemption options are the most valuable, and each issuer has its own reward ecosystem.

In this guide, we make it easy to understand the basics behind the best credit card rewards programs, so you can stop stressing about your points and start using them effectively.

How do credit card points work?

Generally speaking, cash back, points and miles are the three main types of credit card rewards you’ll find when comparing credit cards — although points and miles are treated pretty similarly by card issuers. You earn each type of reward at a set rate for every dollar you spend.

Cash back systems offer a percentage of your purchase back in dollars. For example, a 2% cash back card would award you 2 cents back per dollar spent.

When it comes to points and miles systems, you’re rewarded for your spending in the form of points (or miles) instead of dollars. So you might earn 2X points per dollar on select spending, for example.

The rate of cash back, miles or points you earn may differ depending on the type of purchase you make. Some credit card issuers extend a fixed rate for all purchases, while others offer higher rates for specific types of purchases within “bonus categories,” like at grocery stores, for example.

How to earn credit card points

There are several things you can do to expand your earning potential.

Maximize bonus category spending

With most rewards cards, you earn points or miles by making specific purchases using your card. Issuers typically offer different earning rates for different types of purchases, meaning you might be able to earn more points per dollar on travel, dining or groceries compared to what you would earn on purchases in non-bonus categories.

For example, if you’re an avid traveler and spend a significant amount on flights and hotel rooms, the American Express Platinum Card® could be a good choice for you. It offers:

5X points on up to $500,000 per calendar year spent on directly booked airfare or flights booked through American Express Travel®
5X points on prepaid hotels booked through American Express Travel®
1X points on all other purchases

By focusing your purchases with this card on flights and hotels, you’ll earn a lot more points than if you just used this card for everyday spending.

Leverage bonus offers

Many credit card issuers offer a variety of ways to earn additional points on their cards. Those options may include:

Welcome bonuses: Also called sign-up bonuses, these can be earned by meeting certain spending minimums within the first few months of opening a card.
Referral bonuses: These bonuses are for current cardholders who get a friend or relative to apply for the same card. Generally, you’ll refer a friend through a link and receive a certain amount of points for the referral. The number of points depends on the issuer’s specific referral bonus, but it can be a substantial amount.
Limited-time-offer programs: Programs like Amex Offers allow you to earn more points on spending with specific retailers. To earn these offers, you can either go through your issuer’s branded shopping portal or log in to your account and activate any offers that you’re interested in. Then, you just simply have to meet the terms of the offer.

How to redeem credit card points

Every credit card rewards program is different, but most programs offer several common options for redeeming your rewards. Those options typically include:

With a statement credit, the issuer deposits the cash value of the redeemed points directly into your account balance. Not every issuer offers this option, so if that’s how you plan to redeem your rewards, make sure this perk is available to you before applying.
With a travel rewards card, you can usually redeem your points for flights or hotel rooms through the issuer’s travel portal. American Express, Chase, Citi and Capital One all offer such travel portals. Most premium travel credit cards also let you transfer your rewards to airline or hotel loyalty programs, which can provide you with even more value for your points.
Most issuers offer shopping portals that allow you to redeem points for merchandise from partner retailers.
Some issuers allow you to redeem your points directly with online retailers, like Amazon or PayPal. This is different from shopping portals because you generally redeem at checkout with the merchant rather than through an issuer’s shopping portal. While this can be a convenient way to use your rewards, it’s not the most lucrative.
Issuers may offer various gift card options, including major department stores, restaurants and more. Be aware that redeeming for gift cards generally won’t give you the best value for your points.
Select issuers allow you to donate your points to a charity or a nonprofit organization. You can check if your issuer provides this option by logging in to your account and viewing your redemption options.

How much are credit card points worth?

Credit card points can have different values — it all depends on how an issuer’s points system works and how you redeem them. You’ll usually get about 1 cent in value per point, although credit card issuers may adjust that value at any time. Some options, like redeeming for gift cards or shopping with points on Amazon, may provide less than 1 cent in value.

With that said, you may be able to get more than 1 cent in value for specific redemption options, such as if you transfer them to a high-value transfer partner.

Read your credit card’s fine print to learn how much your points are worth, and pay attention to whether point values go up or down depending on how you redeem them. That way you can get the most out of every point you earn and every dollar you spend.

Bankrate’s take

Points have “monetary” value and “experiential” value. For example, if you were looking to book a cruise and found your points would only be worth 0.8 cents apiece, then your monetary value may not be very high. But if you still took the trip that you wouldn’t have otherwise taken if you’d paid in cash, then that’s highly beneficial to you in a different way and still provides excellent experiential value.

How to calculate point values

Determining your points value with a certain redemption option often takes some quick division. Divide the dollar value of a booking by how many points you’d need to redeem for it:

Cost in dollars / cost in miles = point value

For example, let’s say a round-trip flight from Cincinnati to New York on Delta Air Lines — a transfer partner for those with American Express travel cards — is available for $215 for Basic Economy. It also goes for 9,300 miles. Your point redemption value would be 2.3 cents per point if you went for the miles option — a great deal if you can find it.

Baseline value vs. potential value

Issuers have clear measures for how much their points are worth, but if you’re savvy you can stretch your points even further.

Here are Bankrate’s latest points and miles valuations for popular credit card rewards programs.

How to choose a rewards card

Because everyone’s spending needs are different, there is no one “best” rewards card. To find one that can offer you the best value, you’ll want to review your spending habits and financial needs, and think about what you want to redeem your rewards on. Ideally, you want to earn the most rewards in categories you’re already spending in.

The bottom line

The better you understand how credit card points systems work, the more you’ll get out of your rewards, putting you in a position to leverage the top rewards credit cards on the market. With a little practice, you’ll be able to fully maximize your credit card rewards.

Frequently asked questions about how to use credit card points

Cash back offers benefits like straightforward value and easy redemption — usually, you can redeem your cash back as a statement credit or have it deposited directly into your checking account. Credit card points, on the other hand, vary in value based on the redemption method, though may offer more value than cash back.
It ultimately depends on how you plan to use your credit card rewards. If you want a simple way to earn money back on your purchases, a cash back card is your best bet. If you travel frequently or want redemption options like gift cards or merchandise, then a points credit card will be more beneficial for you.

Many people have both in their wallets so that they can take advantage of cash back as well as points programs geared toward travel.
Rewards values depend on the card you’re using. Generally, credit card rewards are worth around 1 cent per point — so if you earn 1,000 points, that would be worth about $10. However, they could be worth even more if transferred to a high-value transfer partner.