How credit card points work and which card to choose

Credit card rewards are incentives offered by credit card companies to encourage cardholders to use their cards for purchases. These rewards come in various forms, such as points, miles, and cashback.

Here are five key takeaways about credit card points:

What are credit card points?

Credit card points are a type of reward offered by credit card companies to incentivize card usage. These points are earned by making purchases with the card, and the number of points earned usually depends on the amount spent and the card's rewards program.

Accumulated points can then be redeemed for a variety of rewards, such as travel, merchandise, gift cards, or cash back. Each credit card program has its own specific point values and redemption options.

What are credit card rewards programs?

While the terms are often used interchangeably, there's a subtle difference between credit card points and credit card rewards programs:

• Credit card points are the specific units of value you earn through a rewards program. They're like the currency within that program.
• Credit card rewards programs are the overall systems that allow you to earn and redeem those points (or other rewards like miles or cashback). The program dictates how many points you earn per dollar spent, what you can redeem them for, and any other terms and conditions.

How do credit card reward points work?

Credit card rewards work by giving cardholders points, cashback, or other benefits based on their spending. Rewards are funded primarily through interchange fees paid by merchants, along with cardholders' annual fees and interest payments to the credit card companies.

The three main types of credit card rewards are points, miles, and cash rewards. Points and miles tend to function similarly, allowing you to trade in your points (or miles) for specific redemption options, such as:

• Free or discounted flights, hotel stays, and car rentals
• Gift cards to specific vendors
• Discounts on everyday purchases, like gas or groceries
• Charitable donations

The way you accrue points or miles depends on the specific policies of the reward program, and each reward program usually comes with extra rewards for spending in certain bonus categories. For example, a business travel credit card might offer 3x miles on travel-related expenses and only 1x miles on every other type of purchase. Another card might offer 2x points on software purchases and 1x points on everything else.

Keep in mind that you’ll need a fair to good credit score to qualify for a rewards card. Capital One, Chase (Chase Freedom, Chase Sapphire, Chase Ultimate Rewards), American Express, Visa, and Discover all tend to set their FICO credit score thresholds at about 670.

Credit card points and miles vs. cashback

Points (or miles) are like an arcade game. If you spend money playing a game and eventually win a prize, you’ll find that the prize itself is worth far less than the money you spent to play the game. When considering whether to go with a miles or points-based credit card versus a cashback rewards program, it’s important to keep in mind the real dollar value of your points.

Credit card points are usually worth one cent each. But it can vary, depending on both the credit card and what you spend the points on. Some reward systems let you transfer points to other programs, which can change their value. Some programs even have a tiered value system, where the value of points increases as you accumulate more.

With cashback credit cards, the dollar calculation is simple. The percentage of cashback specified by the card is the exact percentage of your purchases you earn back as a reward.

Points vs. miles on credit cards

The terms "points" and "miles" are often used interchangeably when discussing credit card rewards, but understanding the subtle differences between miles vs. points is helpful.

‍Miles:

• Tied to specific airlines: Miles are typically associated with a particular airline's frequent flyer program. When you earn miles, you're essentially accumulating currency within that airline's ecosystem.
• Best for frequent flyers: If you're loyal to a specific airline or alliance, airline credit cards that earn miles can be very rewarding. You can rack up miles quickly and redeem them for flights, upgrades, and other airline-related perks.
• Limited flexibility: Miles generally have less flexibility than points. You're primarily limited to using them for flights on the associated airline or its transfer partners.

Points:

• More versatile: Points are usually associated with a credit card issuer's rewards program, not a specific airline. This gives you more flexibility in how you redeem them.
• Multiple redemption options: Points can often be redeemed for flights, hotel stays, car rentals, merchandise, gift cards, or even cash back. Some programs allow you to transfer points to various airline or hotel partners, further expanding your options.
• Ideal for those who value flexibility: If you don't have a strong preference for a particular airline and want the ability to use your rewards in various ways, points-based credit cards are a good choice.

Note that “points” are the currency often ascribed to hotel rewards programs, which are similar but different from airline miles programs. Major hotel chains like Hilton, Hyatt, Marriott Bonvoy, and IHG all offer individual hotel loyalty programs.

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How to calculate credit card points values

Calculating the value of your points for a specific redemption option is simple: divide the dollar value of the reward (like a flight) by the number of points required.

Let’s look at an example. A $500 flight that’s available for 20,000 points has a point redemption value of 0.025—not a great return. You’d be better off paying for that flight in cash and saving your points for a future redemption. Alternatively, you could transfer your 20,000 points into cashback and get a return of $200 (cashback is typically worth $.01 a point).

Often, transferring your points or miles to airline or hotel partners and redeeming through them yields the highest value.

Different online financial resources claim to have determined the “right” point value in popular points and miles programs, but as you can see, valuations are tricky—and inconsistent. Here's an overview of the latest valuations from three websites:

For your purposes, aim to get an equal amount of the baseline value for any given redemption. To maximize your redemptions, exceed the baseline value.

How much are credit card points worth?

The value depends on the specific rewards program and how you choose to redeem the points.

Here are some general guidelines:

1. Cash value: If the rewards program offers cashback, 1,000 points might be equivalent to a certain dollar amount, such as $10 or $20. This would mean each point is worth about a cent.
2. Travel rewards: If the rewards program is travel-focused and lets you redeem points or miles for travel-related purchases, the value of 1,000 points can vary based on the program’s terms. For example, points you accrue with certain travel credit cards may be worth more when redeemed for travel-related purchases. In a case like this, 1,000 points might be worth $12.50 when redeemed for a hotel or flight versus $10 in cash value.
3. Merchandise and gift cards: Some rewards programs allow you to redeem points for merchandise or gift cards. In this case, the value of 1,000 points would depend on the retail value of the items or the face value of the gift cards available for redemption.
4. Statement credits: Certain credit card rewards programs allow you to redeem points for statement credits, effectively reducing your credit card bill. The value of 1,000 points in this scenario would depend on the cash value assigned to each point by the program.

‍How much are 1,000 credit card points worth?

To determine the exact value of 1,000 points in a specific rewards program, you'll need to check the program's terms and conditions or redemption options. Aim for at least $10 in value.

How much is 50,000 points worth?

The value of 50,000 points is roughly $500, but that number can go up or down depending on the program and redemption.

How to earn credit card rewards points

Points-based systems often offer point multipliers for purchases in a certain category, like 3x points on dining or travel, incentivizing you to spend more in those areas.

Cashback programs are more simple: You spend money and receive a guaranteed percentage back. You can then use that money wherever you choose.

That said, there are other factors to consider when earning credit card rewards points, miles, or cashback, such as:

• Signup bonus rewards: Many corporate card companies will offer an immediate signup bonus to entice new customers. These rewards often come with strings attached—a required amount of spending within a certain period. For example: “New business card users gain 10,000 bonus rewards points if they spend $15,000 within the first 3 months of the card being issued.”
• Referral bonuses: Some business credit cards offer bonus points if you refer other businesses in your network for the same card. The bonus points from multiple referrals can be significant, but they’re usually capped at a maximum amount each year.
• Spending at specific vendors: Certain corporate rewards cards restrict the places you can use them and still get bonus points, miles, or cashback
• Spending on specific categories: Cards may limit or increase rewards by spending on noted categories
• Spending time frames: To receive greater multipliers or a signup bonus, you may be required to spend a certain amount in a certain time frame
• Earning points multipliers: Some cards will offer points multipliers to incentivize spending on specific vendors, categories, or within certain time periods
• Cashback on all purchases: More straightforward cashback programs allow you to earn cashback on all your purchases, no matter the vendor or spending category. Others may still specify which spending areas earn you the most cashback on credit cards.

How to redeem credit card rewards

The biggest benefit of using a rewards card comes from using your points. Most credit card issuers offer several ways to redeem your rewards. These options typically include:

1. Statement credit: Cashback credit cards will typically apply your cashback earnings as a statement credit. Other options might include a check or direct deposit into your bank account.
2. Check or direct deposit: You can often redeem rewards points as a check or direct deposit into an eligible bank account. This is usually a free and fairly simple process with most card issuers.
3. Gift cards: Redeeming points for gift cards is a popular option offered by many issuers. This can include cards for a variety of retailers. Although it's a versatile redemption option, the value you get for your points might be less compared to other methods.
4. T‍ravel rewards: Travel rewards cards allow you to redeem membership rewards for travel purchases like airline flights, hotel stays, and rental car discounts. Some travel cards also let you transfer your points to hotel or airline loyalty programs, where the point values may be higher.
5. Shopping portals: Many credit card issuers have shopping portals where you can use your points to purchase items from their partner retailers, like Amazon and Apple
6. Donations to charity: Some credit card companies let you donate the value of your points to charitable organizations

How to choose the most rewarding credit card for you

Every company is different in its spending needs. That’s why you’ll want to choose a corporate rewards credit card wisely before jumping for the one with the flashiest rewards policy. When in doubt, read the fine print.To summarize, here’s what you need to consider before choosing a corporate rewards credit card for your business:

• Real value: Points and miles aren’t always worth the spending they incentivize. Strive for a one-to-one cash value ratio to avoid overspending
• Cashback terms: Some rewards policies require you to spend a certain dollar amount within a certain period or wait a certain amount of time before you can redeem the rewards. Always read the specific policy for its redemption terms.
• Spending flexibility: Points, miles, and cashback are not always applicable to every vendor or transaction. For example, if you rarely travel for work but are often buying certain industrial materials, you won’t benefit from a travel-heavy rewards program.
• Fees: Rewards sometimes accompany cards with high annual fees or interest rates—always consider other benefits of the business credit card instead of just looking at its rewards program. Sometimes, the costs outweigh the perks.

Best rewards credit cards

It's tricky to definitively say which are the best, as it depends on your individual spending habits and priorities. However, here are five consistently top-rated rewards credit cards across issuers with diverse strengths for improving your personal finance:

• Chase Sapphire Preferred Card: A great all-around travel card with valuable points, good travel protections, and a reasonable annual fee. Ideal for those starting to explore travel rewards.
• Capital One Savor Cash Rewards Credit Card: Excellent for foodies and entertainment lovers. Offers high cash back rates on dining, entertainment, and streaming services.
• American Express Gold Card: Another strong contender for dining and groceries, with solid rewards rates and perks like dining credits. A good choice if those are your biggest spending categories.
• The Platinum Card from American Express: A premium card with a high annual fee, but packed with luxury travel benefits like airport lounge access, hotel elite status, and statement credits. Best for frequent travelers who can maximize the perks.
• Citi Double Cash Card: A simple and effective cash back card with a high flat rate on all purchases. Perfect for those who prefer straightforward rewards without complicated categories or bonus spending.

Keep your eye on the prize, not the points

While there are many rewards credit cards on the market to choose from, it’s not always clear how their programs work. Ramp is a corporate rewards card with zero ambiguity around rewards. It’s simple: Ramp cards help you save an average of 5%.

What’s more, Ramp cards come packaged with powerful expense management software, making them an ideal solution for businesses of any size.

With real-time updates and reports, you can get a full picture of your spending and finances at any given time. With Ramp, every expense is automatically accounted for, matched to its receipt, and logged in your general ledger—simplifying accounting for your cashback rewards.