A beginner’s guide to credit card points

Learning a credit card points system can be challenging. There’s a lot to keep track of, from remembering which types of purchases earn more points to learning which redemption options are the most valuable. Every rewards program is different, too. But here’s how credit card points generally work.

What are credit card points?

There are three types of credit card rewards: Cash back, miles and points. With each type, you’ll earn at a set rate per dollar you spend. For instance, cash back systems offer you a percentage of your purchase back in dollars — for example, a 2 percent cash back card would award you 2 cents back per dollar spent. Instead of dollars, credit card points systems reward you in the form of points for your spending. So, you might earn 2X points per dollar on select spending, for example.

However, the rate of points you’ll earn may differ depending on the type of purchase you make. Some credit card issuers have a fixed rate for all purchases, while others offer higher rates for certain types of purchases (also known as “bonus categories”).

For example, travel credit cards tend to offer more points (or miles) for travel-related spending. A top travel rewards card might offer 5X points per dollar spent on eligible travel-related purchases (such as flights or rideshares) and 1X points per dollar on all other purchases.

How to earn credit card points

In addition to using your credit card for daily purchases (especially in bonus categories), there are a few things you can do to expand your earning potential.

Maximize bonus category spending

In most cases, you earn credit card points by making specific purchases using your card. Many issuers offer different points rates for certain types of purchases. So, you might be able to earn more points per dollar on travel, dining, groceries or other purchase categories.

For example, if you’re an avid traveler and spend a significant amount on flights and hotel rooms, The Platinum Card® from American Express offers 5X Membership Rewards points per dollar spent on flights booked directly with airlines or through American Express Travel (on up to $500,000 per calendar year). You’ll also earn 5X points on prepaid hotels booked through American Express Travel and 1X points on all other purchases.

Earn a welcome bonus

Many credit card issuers offer a sign-up bonus that allows you to earn a large number of points at once. Typically, you’ll have to meet a certain spending minimum within the first few months of opening the card before you can claim the bonus, so be sure that works with your budget before signing up.

For instance, the Platinum Card from American Express offers new cardholders a welcome bonus of 150,000 points after spending $6,000 within the first six months of account opening.

Take advantage of other bonus offers

Some issuers offer referral bonuses to current cardholders who get a friend or relative to apply for the card. Generally, you’ll refer a friend via a link and receive a certain amount of points for the referral. The number of points will depend on the issuer’s specific bonus, but it’s usually a substantial amount.

Additionally, many credit card issuers also have their own limited-time-offer programs that allow you to earn more rewards on spending with specific retailers. To earn these offers, you’ll simply log in to your account, browse the offers available to you, activate any that you’re interested in and then meet the terms of the offer.

How to redeem credit card points

Every credit card rewards program is different, but most programs give you several options for redeeming your rewards. Here are some of the most common.

• Statement credits. With a statement credit, the issuer will deposit 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, be sure this perk is available to you before applying.
• Travel purchases. 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 and Capital One all have such travel portals. Additionally, most premium travel credit cards let you transfer your rewards to airline or hotel loyalty programs, which can provide you with more value for your points.
• Shopping portals. Most issuers offer their own shopping portals where you can redeem points for merchandise from their partner retailers.
• Online retailers. Some issuers allow you to redeem your points directly with online retailers, like Amazon. 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 seems like a convenient way to use your rewards, it’s usually not the most lucrative.
• Gift cards. Issuers may offer various gift card options, including major department stores, restaurants and more. But be aware that redeeming for gift cards generally won’t give you the best value for your points.
• Charitable donations. Select issuers will 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 a 1:1 redemption for many options — which means 1X point is equal to 1 cent — though credit card issuers may adjust that value at any time. Some options, like redeeming for gift cards or shopping with points on Amazon, typically provide less than 1 cent in value.

However, you may be able to get more than 1 cent in value for certain redemption options. For instance, if you earn the 60,000-point sign-up bonus on the Chase Sapphire Preferred® Card (by spending $4,000 in the first three months), those points have a base value of $600. However, you can increase the value of your points with this card by 25 percent if you redeem them for travel through Chase Ultimate Rewards. That means that your 60,000 points could be worth as much as $750.

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 they are redeemed.

How to calculate points values

Typically, determining your points value with a certain redemption option only takes some quick division: You’ll want to divide the dollar value of a reward by the points needed to redeem it to determine the point value. For example, if you purchase a $300 flight with 15,000 points ($150), your points are worth 2 cents apiece — a great deal!

You’ll typically get the most value for your points (and miles) if you redeem them with high-value transfer partners. Here are our points and miles valuations for some of the most popular credit card rewards programs:

The bottom line

Your earning structure, redemption options and points value will vary based on the card you’re using. In any case, be strategic about how you redeem your credit card points. If your points are worth more as cash back than they would be if you redeemed them for gift cards, why not choose cash back?

Likewise, if your points value increases when you redeem them for travel purchases, it makes sense to save up your points for your next big trip. The better you understand how credit card points systems work, the more you’ll get out of your rewards — and the top rewards credit cards on the market. With a little practice, you’ll be able to fully maximize your credit card rewards.