Credit Card Rewards: How They Work

Many consumers today are opting to make purchases with credit cards instead of cash or debit cards to earn rewards such as cash back, points, or miles. It’s a no brainer to many consumers who travel often or make large purchases, particularly business owners.

When shopping for a rewards card, consider the different types:

Cash Rewards:

Cash rewards are earned based on a percentage of dollars spent. If you are a big credit card spender, you may opt for a credit card that has an annual fee but pays a higher percentage in cash back. However, for the average consumer making daily purchases, it may be more effective to search for a card that pays a guaranteed percentage in cash back, usually somewhere between 1% and 2%, with no annual fee. Some cards will offer a higher percentage of cash back on purchases like gas or groceries. Consider what you will be using your card for when determining which card to choose. To redeem the cash earned, there is usually a cash threshold that must be met first. The cash can be applied directly toward the balance of your card or direct deposited into your checking or savings account.


Credit cards that offer point rewards usually do so at an earnings rate of one or two points per dollar spent, and sometimes also one point for each dollar of interest paid. The points can be redeemed on the credit card’s website to purchase merchandise or gift cards. Consumers often find that gift cards provide the most bang for their buck.   


Miles are earned in a similar method to earning credit card points. Usually, one credit card mile is worth approximately one cent (basically earning you 1% of your spending). These types of cards are often compared to frequent flier programs where customers can earn points for exclusively flying with one airline. These rewards programs do not require a credit card. Usually, consumers find that credit card miles can give them more value than earning frequent flier miles alone. However, many consumers participate in both methods to earn the most miles they can.

No matter the credit card reward type you choose, keep these additional facts in mind:

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