A credit card point is a bonus that you receive as you use your card. In general, the more you use the card, the more points or rewards you get from the company.
When you are shopping for a card that offers rewards, one of the first things you need to decide is whether you want points or cash back. Points are usually redeemed for airline tickets, show tickets, and such. While points are a fine idea for some people, many others find that points are something of a hassle to keep track of.
Cash back or rebate programs are other types of credit card rewards. Many people prefer this type of reward program because it is very easy to keep track of and use. You do not have to worry about figuring out what the points are or how to redeem them when you choose the cash back reward. The cash back amount that you accrue per month is added to your account until you use it.
If you wish to use a point-based reward program, you should check on the restrictions that may apply. In some cases, you may not be able to use your airline rewards when you want to use them. There may be blackout dates or seating restrictions. You should also know about and understand any redemption fees that may apply.
If you have a particular brand or hotel, or airline that you use a lot, you may want to see if the company offers a credit card. This is only a good idea if you plan to use the reward points with this company brand. If you are a loyal customer of this brand and truly use the points that you earn, this can be one of the most generous programs available.
One issue that you should keep in mind about credit card rewards is that they only really pay off if you pay off your balance on a regular basis. If you do the math on this, you will see that the rewards rarely pay off more than what you will have to pay in interest when you carry over a balance.
You will want to see if the credit card imposes any rebate caps. You may find some companies that limit the amount of your benefit either by using a cap on points or on-air miles. Some may limit the amount of cash back you can get. Whenever possible, try to use a company that has no caps on rewards.
Shop for a reward card that has no annual fee; there are many of these available today. In addition, make sure you investigate any expiration dates on the rewards that you will earn. Some companies will expire your points after a certain amount of time.
Lastly, you want to make sure you keep up to date with the company’s policies. It is not uncommon for some credit card companies to lower their rebate rates (or increase them from time to time). This information should be available either online or in your monthly billing statement. It may also come as a newsletter within the statement. Take the time to look for it and read it carefully.
Typically, the account holder would get at least one point per dollar spent on purchases, with each of the credit card points valued as at least one cent at redemption time, although program specifics vary.
How do credit card points work?
These points can be redeemed for merchandise, gift cards, travel, cashback, donations, and so forth, depending upon what a particular credit card company offers in their reward program. Sometimes, how you use your points can determine how much each one is worth. You might, for example, get more bang for your buck if you redeem points on travel than if you wanted cashback.
Credit card points analysis
In more ordinary times, travel points credit cards are popular with frequent travelers. Not a surprise, right? As FrequentMiler.com points out, though, these kinds of rewards just weren’t resonating in the same way during the pandemic — again, not a surprise. In response, many credit card companies created alternative ways that people can earn and use the points they’ve accumulated.
During COVID, The Frequent Miler has been keeping track of the temporary perks and enhancements offered by credit card companies. These perks include rewards that focus on the essentials people have continued to need during the pandemic, such as groceries, gas, pharmacy purchases, food delivery, and streaming services. Other credit card companies have been offering more attractive bonuses and rebates as enticements for people to use their cards.
It’s extremely rare to see so many opportunities — so many ways to take advantage of bonus dollars in such ordinary spending categories — especially at the same time. Not using a credit card in ways that can maximize bonus points right now is an expensive mistake to make.
How people used 2020 points
So, how did people use their points during the tumultuous year of 2020? Well, according to a new survey by Bankrate:
30% of people were able to receive $300 or more in cash or gift cards when redeeming their points
15% claimed a complimentary stay in a hotel
11% earned a free airline flight
And, ready for this? Nearly one in three credit card users (31%) didn’t use their points at all.
Talk about leaving money on the table.
Ways to use credit card points
First things first, pull out your credit cards and investigate what perks the companies might be offering. Do any of these rewards need to be activated? If so, do that ASAP. Then, out of the current reward options, pick which ones make the most sense for you right now and take advantage of them.
Here are some possibilities, depending upon what your credit card company offers.
Using points for travel. As increasing numbers of people in the United States have been vaccinated against COVID, more of them will start to feel more comfortable with using accumulated travel points.
Taking a staycation. If celebrating a staycation still seems like a better idea right now, perhaps by renting a cabin close by or staying in a nearby resort, take advantage of gas discounts and other local transportation options (train, rideshares, taxis, and trains). Load up with your favorites from supermarket reward points and consider cashback options for extras on your closer-to-home trip.
Selecting gift card options. If your credit card company offers gift cards in exchange for points, and one or more of your favorite venues is on the list, this can be a great option. In fact, some stores will give you bonus dollars if you choose to redeem your points with one of their gift cards. You can then spend the money yourself or give it as a present.
Getting cash back. Deposit that money into your bank account, and you’ve got full flexibility in how you spend it. Doesn’t get much better than that. It can make sense to compare credit card points vs. cash back options on your card and make the most financially savvy choice for your unique situation.
Paying down debt. Instead of taking the cashback reward and depositing the dollars into your savings or checking account, use them to pay down your credit card balance. This will help you to pay less in interest overall, so it’s a double benefit.
Donating to your favorite charities. Some companies will allow you to use credit card points to support causes that matter. Check to see how many points you’ll need to accumulate before that reward option kicks in.
The amount and value of reward points vary from one card provider to another. Card providers put a minimum limit to the number of points only after which you can redeem them. You can redeem your points online through net banking, mobile banking, and applications. Through reward points, you can:
- Make specific purchases
- Get discounts on products
- Buy gift cards
- Get subscriptions
- Check out Free Online Courses with Certificates
- Can Reward Points Be Converted into Cash?
“Yes, some card providers do allow the conversion of reward points into cash. Not all card providers allow this conversion.”
What is The Value of 1 credit card point?
“Each credit card provider has its own system for calculating the value of 1 reward point. It might be equal to 25 cents or 1 dollar. There is no universally fixed value for reward points.”
Limitations on Rewards System in Credit Cards
Although the reward system in credit cards seems lucrative, card providers set several limitations on it. It is important to note that you:
Do not get rewards for each payment
Cannot redeem all the points
Must pay a certain fee on reward redemption
Can only redeem rewards after reaching a minimum limit
Who is Actually Paying for Reward Points?
Rewards System in Credit Cards
How are credit card points paid for?
Redemption fee: Card providers offer rewards to you, but these are not entirely free of cost. You should know that the redemption value is often not equivalent to the reward points. They charge a certain fee on point redemption. This means that most amount is lost in the redemption process.
Interchange fee: This is one of the most tactful ways in which banks recover the cost of rewards from you as a customer. Whenever you make a payment through a credit card at a store, the card provider charges the store with an interchange fee. This fee is equal to a certain percentage of the sale.
Since store owners must pay this fee from their own pocket, they increase the retail prices for all customers. This means that the customer must pay for the interchange fee as well.
Limited value: Card providers offer most reward credit card point on schemes that might not be useful to you. You might be getting offers on products that might not be popular, outdated, or might have limited purpose. They also put a cap on the amount of credit card point that can be redeemed. This means that you might have to pay a large sum to get that offer.
