What are credit card rewards?

Photo by Getty Images/Illustration by Bankrate
Bankrate Logo

Why you can trust Bankrate

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for . The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Terms apply to the offers listed on this page.

Dear Cashing In,

For years I’ve only used my debit card to make purchases, but my friends tell me that I’m foolish for not taking advantage of credit card rewards to earn free travel or cash back. The truth is, this sounds great, but I don’t really know where to start. Could you help a newbie out by explaining the very basics of rewards cards?


Dear Brian,

Your friends are right to say that credit card rewards can be a big perk. As long as you’re not someone who is prone to overspend and get into debt, it’s time to ditch your debit card and start earning credit card rewards. While there are certainly a lot of details out there about credit card points and miles, you don’t need to understand all of them to get started on your way to earning cash back and free travel.

Have a rewards question for Stephanie? Drop her a line at the Ask Bankrate Experts page!

Choosing your first rewards card really only requires you to know a few simple things. Once you’ve got a card you’re using for purchases and rewards earning, your knowledge will grow quickly through practice.

What are credit card rewards?

Credit card rewards are incentive programs offered by card-issuing banks as a way to encourage you to choose and use one credit card over another. As a reward for using a specific credit card, the bank gives you a reward—usually in the form of a point, mile, or cash back credit—for each dollar you charge. It’s as simple as that.

How do rewards credit cards work? 

How many reward points you earn—or the percentage of cash back you accrue—is based on the terms of the individual rewards card that you choose. Some cards offer a fixed earning rate per dollar you spend, while others offer variable rates that allow you to earn more points per dollar in certain bonus categories.

The Citi® Double Cash Card, for example, earns a flat rate of 2 percent cash back on all purchases (1 percent when you make the purchase and 1 percent when you pay it off). Meanwhile, a card like the Chase Freedom Flex℠ earns at least 1 percent cash back on everyday purchases, 3 percent back on drugstore and restaurant purchases and 5 percent cash back on rotating quarterly categories (up to $1,500, then 1 percent back). You’ll need to activate the bonus categories each quarter to get the 5 percent back.

When you’re choosing a card, you’ll want to think about where you most often spend your money. Common bonus categories for rewards earnings are supermarkets, travel, restaurants and gas stations. If you spend a lot in any of these areas, you’ll want a card that matches your expenses with your potential for maximizing earnings.

Different types of rewards cards

There are three primary types of reward cards you’ll have to choose from when applying for your first rewards card: a flexible rewards card that earns points in a bank’s own program, a co-branded credit card that earns points or miles directly in an airline or hotel loyalty program and a cash back card that earns a percentage back from every purchase you make. Here’s how each of these work:

  • Flexible rewards cards allow you to earn points towards an issuer’s program with multiple ways to use them. The Platinum Card® from American Express, for example, earns points in the American Express Membership Rewards program, while the Chase Sapphire Preferred® Card and Chase Sapphire Reserve® earn points in the Chase Ultimate Rewards program. Points earned in both of these programs can be traded for travel (flights, hotels and car rentals), transferred to a number of airline or hotel loyalty programs, or redeemed for merchandise or gift cards.
  • Co-branded cards earn you rewards with a specific airline or hotel loyalty program. For example, the United℠ Explorer Card earns airline miles that are deposited directly into your United MileagePlus account. Likewise, the World of Hyatt Credit Card from Chase earns points that are directly deposited into your Hyatt loyalty account. When you want to get a free flight or free hotel night, you can redeem the points following the rules of the specific loyalty program. This type of card is great if you have a favorite airline or a hotel brand you use almost exclusively. If not, a flexible rewards card will likely be more valuable for you.
  • Cash back cards earn a percentage back on every purchase you make, often in the form of a statement credit. The Chase Freedom Unlimited® card, for example, earns at least 1.5 percent cash back on every $1 you charge to your card, plus 3 percent on drugstore purchases and 5 percent back on travel purchased through Chase Ultimate Rewards.

How to earn and redeem rewards

Once you have your credit card in hand, earning rewards is as simple as making purchases. You spend a dollar, and the agreed point, mile, or cash back credit is automatically added to your rewards balance. The more money you spend using your credit card, the faster your rewards balance will grow.

When it comes time to redeem your rewards, the rules for how you cash in your points, miles or cash back credits will vary based on the card and program. You’ll have to do a little reading to learn about the specific details of the card you chose, but redeeming your points is most often a simple online transaction.

Bottom line

Rewards-earning credit cards provide great benefits if you’re looking to earn free travel or cash back—and most often these benefits offset any of the additional costs of using a credit card over debit. I’m pretty sure that once you’re gotten into the swing of how rewards work, you’ll be on your way to new and exciting places and glad that you finally listened to your friends!

The information about the United℠ Explorer Card and World of Hyatt Credit Card has been collected independently by Bankrate.com. The card details have not been reviewed or approved by the card issuer.

Written by
Stephanie Zito
Travel Rewards Expert Contributor
Stephanie Zito is a professional traveler, self-employed humanitarian consultant and collector of credit card points. She shares savvy travel tips that she’s learned firsthand circling the globe for more than 25 years. She’s a backpacker, expect and premium traveler who’s visited more than 130 countries and all seven continents. Her life motto is “See the world, change the world, have fun doing it!”, and her mission is to inspire others along the journey.