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How do credit card points work?

How Do Credit Card Points Work?

How Do Credit Card Points Work?

There’s a lot to love about credit card points. But how exactly do they work, and how do you get the most out of them?

How do credit card points work?

Whether you’re just curious about credit card rewards or a seasoned professional looking level up your game, understanding how credit card points work is a critical step to maximizing your earnings. But not all credit cards earn points; for an overview of the types of credit cards, see this post.

What are credit card points?

If you’ve heard of credit card points, you’ve probably also heard of airline miles, hotel points, and possibly some other types of rewards various credit cards and loyalty programs offer. It may seem confusing, but these are all just different names for the same thing. For simplicity, I’ll use the word ‘points’ here to refer to all types of credit card rewards similar to points, including those listed above. And while the name isn’t important, there are a few different types of points you should know about.

Note: this post is focused on points, but there are other types of credit card rewards (such as cash back). We’ll cover reward types more generally in a future post.

Types of points

Points can be earned in various ways; often by using your credit card or via a loyalty program. Sometimes extra points are earned when you first open a credit card account. Often, the rate at which you can earn points depends on the category in which you shop. For example, you may earn extra rewards on travel purchases. While all credit card points points are earned in similar ways, how they are redeemed determines varies significantly between issuer points and retailer points.

Issuer points

Issuer points are controlled by the issuer of the credit card. Examples include Chase Ultimate Rewards points and American Express Membership Rewards Points. These points are earned when you make purchases with your card, and they are redeemed via the card issuer’s portal. Redemption options vary widely, and most issuers offer several choices. Examples include the purchase of gift cards and credit towards previous card purchases. Because the issuer controls how points are redeemed, they also control the value of their points — for example, they set the number of points required to exchange for a $50 gift card. While changes to point values are not frequent, they can significantly impact the value of reward points (including those you’ve already earned).

Retailer points

Retailer points are redeemed with a specific retailer, rather than the card issuer. Common examples of retailer points include airline miles & hotel and retailer points. These points are typically redeemed for things like flights, hotel stays, or future purchases. Like issuer points, the value of retailer points can change over time, but such changes are made by the retailer. Another difference between issuer and retailer points is retailer points can often be earned in additional ways, such as via loyalty programs. For example, airline loyalty programs allow customers to accumulate points just by flying with that airline. This means that you don’t need their credit card to earn a free flight. Finally, retailer points are generally less flexible than issuer points, because while issuer points can be spent in a variety of ways, retailer points can only be spent with a specific retailer or retailer group.

In conclusion, credit card points come in many flavors. ‘Points’, ‘miles’, and ‘rewards’ are synonyms, and points can be classified depending on how they are redeemed. Understanding the common features and differences between types can help you better understand how credit card points work, and thus which type of card is right for you.

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