How Credit Card Rewards Work
When you use a rewards credit card, you earn points or cashback with each purchase. These points accumulate and can be redeemed for travel, merchandise, gift cards, or even cash.
The key is understanding how rewards are earned and redeemed, which varies between cards. Pay attention to special earning rates and redemption options to get the most out of your card.
Types of Credit Card Rewards
1. Rewards Points Cards:
Earn points on every purchase, typically 1 point per ₹100 or dollar spent. Redeem for cashback, gift cards, or merchandise.
2. Travel Rewards Cards:
Perfect for frequent travelers—earn miles or points that can be used for flights, hotels, or travel perks like lounge access. These cards often have partnerships with airlines or hotel chains.
3. Cashback Cards:
Get a percentage of your purchases back as cash! Cashback can be flat across all categories or higher for specific ones (like groceries or dining).
4. Co-Branded Cards:
Issued in partnership with retailers or brands, offering higher rewards when you shop with that specific partner.
5. Welcome Bonuses:
Many cards offer bonus points or miles if you hit a spending threshold within the first few months—boosting your rewards right from the start!
6. Accelerated Rewards:
Earn higher points for spending in select categories (dining, groceries, travel), helping you rack up rewards faster.
7. Milestone Benefits:
Earn bonus rewards after reaching a specific spend in a year or over a defined period.
8. Renewal Points:
Some cards give loyalty points when you renew your card annually.
9. Transferable Points:
Certain cards allow you to transfer points to airline or hotel loyalty programs, often at favourable rates, for added flexibility.
Benefits of Credit Card Rewards
- Travel: Use points to book flights, hotels, or car rentals, reducing your out-of-pocket travel costs.
- Cashback: Convert points to cash and use it to pay off your balance or for other expenses.
- Gift Cards: Redeem points for gift cards from popular retailers.
- Merchandise: Many issuers offer a catalogue of products that can be purchased with points.
- Charitable Donations: Donate your points to charity if your card offers this feature.
- Point Transfers: Boost value by transferring points to airline or hotel programs for better redemption rates.
Tips to Maximize Your Credit Card Rewards
1. Choose the Right Card: Select a card that matches your spending habits. For example, a dining card if you often eat out or a travel card if you fly frequently.
2. Understand Redemption Options: Not all redemptions are equal. Travel bookings often offer better value compared to merchandise.
3. Track Expiry Dates: Some points expire! Redeem before it’s too late.
4. Avoid Overspending: Don’t spend more than usual just to earn rewards. Interest charges can wipe out any benefits.
5. Use Accelerated Categories: Leverage cards with higher earning rates for specific purchases like groceries, fuel, or dining.
6. Monitor Promotions: Stay alert to promotions that offer bonus points for select purchases or during special periods.
Steps to Redeem Credit Card Rewards
1. Online:
Log into your bank’s website or app, navigate to the rewards section, and select your redemption option.
2. Customer Service:
Call the issuer’s customer service to redeem points over the phone.
3. Offline Forms:
Some issuers require filling out a physical form for redemptions.
Important Considerations
1. Minimum Redemption Threshold: Ensure you have enough points to redeem, as some cards have a minimum requirement.
2. Redemption Fees: Be aware of any fees associated with redeeming points.
3. Know Your Points Value: Some redemption options offer more value. Transferring points to airlines often yields better value than redeeming for merchandise.