What Are Credit Card Points? How Do They Work?

Written by Justin EstesReviewed by Nathan Brown, CFP®Updated: 13th Apr 2022
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You may have wondered how some of your friends have been able to travel the world seemingly for free.

Or, every time you catch up with one of your friends, they mention their next weekend getaway that was paid for by credit card points.

Credit card points are one of the most effective and attainable currencies for making your money go a very long way.

However, there are some misconceptions and general rules of thumb to understand when it comes to credit card points.

Today, we will discuss what credit card points are, how to earn them, and ultimately how to use them to their fullest potential.

What Are Credit Card Points?

Credit card points are a synthetic currency issued by banks and financial institutions that issue credit cards.

Different rewards credit cardsoffer earnings rates depending on their terms and conditions.

For example, if you have a credit card that earns 3x points per dollar on travel and restaurants, then for each dollar you spend in one of those categories, you will earn 3 points.

Once you have earned and accumulated enough points, you can redeem them in various ways, including statement credits, free travel, discount to travel, or gift cards.

There are many more options for points redemption, but these are some of the most common.

>> See: The Best Rewards Credit Cards

How Do Credit Card Points Work?

The core concept for credit card points is to provide an incentive for the cardholder to apply for and spend money with a particular bank.

There is plenty of competition among financial institutions that offer credit cards for travel and dining, groceries, and many other categories. By providing a unique point earning system, they will attract long-term customers that will benefit from the credit card points.

Bonus incentives and tailored spending offers help cardholders earn extra points quickly so they can get a head start on their reward Journey.

>> More: How to Apply for a Credit Card and Get Approved

What Are Credit Card Points Worth?

Different banks offer points that range from $0.005 to $0.02, depending on the issuer and your redemption strategy.

For example, redeeming points directly through the bank may result in a lower redemption rate than if you transfer the points to a partner airline or hotel chain.

On average, the biggest and most well-known financial institutions have the most valuable points because they have the most versatile redemption options.

Smaller banks and store cards may offer credit card points, but they will not be as valuable or flexible as a big bank credit card.

How to Earn Credit Card Points

Although the most common way to earn credit card points is through spending money with the credit card on the categories where they earn the most points.

However, a few different methods enable cardholders to turbocharge their points earning potential in exchange for helping their bank.

Everyday Spending

Everyday spending is what will generate the most points in the long run because the cardholder is pairing their existing spending with a tool that essentially pays them back for their most common expenses.

Since everyday spending is integral to your points earning potential, take the time to research and match your regular spending habits with a credit card that provides the highest earning rates for your situation.

Referring a Friend

Since credit cards generate a lot of income for the issuing bank, they want to bring as many new cardholders as possible.

One of the best marketing tools for companies is favorable reviews and referrals generated by satisfied customers. Banks are aware of this and regularly offer referral incentive bonuses to their current cardholders.

For example, if a bank is offering a 100,000-point sign-up bonus for new cardholders, they may offer 20,000 points to any existing customer with a unique referral code.

The current cardholder would send the code to friends and family, and anyone who submits an application that is approved will result in 20,000 referral points for the cardholder.

If you currently have rewards credit cards, look through your promotional emails to see if there are any offers from your bank; you may be sitting on hundreds of dollars worth of bonus points!

The American Express Platinum Card has one of the most well-known referral programs for its cardholders.

Sign-Up Bonuses

Sign-up bonuses are among the most powerful marketing tools to attract new cardholders, especially over the last few years.

The premise of a sign-up bonus is that when an applicant is approved and becomes a customer, they will be eligible for a one-time bonus that can range anywhere from $50 worth of points to over $1,000 worth of points depending on the card.

If you are unsure of what cards offer the best sign-up bonus, identify the type of rewards card that fits your spending habits, and compare the top credit cards in that category.

Types of Credit Card Rewards Points

Rewards credit cards offer many different points and redemption options depending on the specific reward program and how your account is structured.


Rewards credit cards are famous for their travel perks and redemption options. If you have a travel credit card, it probably falls into one of three categories:

  1. General travel – General travel credit cards can use their points to book travel directly through the bank’s portal. These cards usually allow cardholders to book flights, hotels, and even rental cards. The points are often versatile, but they may not provide loyalty program perks.
  2. Airline miles – Most major airlines have a corresponding credit card program that enables members to book discounted flights, score free upgrades, and more. When you have an airline credit card, most of the earning potential is geared toward booking flights and gaining access to airline lounges, among other luxury perks.
  3. Hotels – Hotel credit cards serve the same function as an airline card, except that the points are redeemed for nights at a hotel or resort. Many of the best hotel credit cards offer free room upgrades, early check-ins, and late checkouts. Premium hotel credit cards even offer credits for spas, restaurants, and other amenities.

>> More: How Do Travel Credit Cards Work?

Statement Credits

Some cardholders use their points similarly to how cash back credit cards work, in the form of statement credits.

Statement credits enable cardholders to use their points to cover charges that have not been paid off yet.

Some credit card companies incentivize this by offering statement credit redemption bonuses, whereas others penalize this redemption option by decreasing the points’ value.

Cash Back

Although rewards credit cards do not provide the same level of cash back as a strict cash back credit card, some banks offer cash back redemption as a points option.

Gift Cards

Gift cards can be a great redemption option for points, especially if you can redeem them for a valuation of a penny or more.

Finding a fair redemption rate on gift card point redemption is often a good alternative to travel if you do not have any trips planned.

However, some banks have poor redemption rates for gift cards, so always compare your options so you don’t lose quality points on a bad gift card deal.

Online Shopping

Using points to shop online is a powerful and often overlooked redemption strategy that can save a lot of money.

Many financial institutions have partnerships with stores and online shops, resulting in discounted rates if you pay with points.

Although there are better redemption offers than others, shopping online through your credit card portal is worth exploring, especially if there are deals.

>> More: Best Store Credit Cards

How Do You Redeem Credit Card Points?

Most credit cards have a centralized portal where you can view your points balance and choose how you want to redeem your points.

Sometimes you may not have enough points for an entire flight or hotel stay, but you can often use your balance to offset the total cost and charge your card for the remaining cost.

Setting a goal and assigning your points a purpose will help ensure you are getting the most out of them.

For example, if you want to fly to Australia or stay for a week at a resort in Mexico, you should compare your options and book the trip that fits your budget and available points the best.

Do Points on Credit Cards Expire?

Most banks offer points without expiration dates; however, there are exceptions. You should read the terms and conditions to see if they expire or disappear if you close the account or remain inactive.

What’s the Difference Between Credit Card Points and Miles?

Credit card points and miles are very similar, but points are usually more versatile. Miles are often attached to airline credit cards which means their primary purpose is to book flights.

Are Credit Card Points Worth It?

If you want to travel and make your money stretch as far as possible, credit card points are certainly worth it.

Since many cards offer points on the market, researching and comparing your options will help pair you with a card that earns the most points for your spending habits.

>> More: Cash Back vs. Travel Rewards

Bottom Line: Credit Card Points

Credit card points are powerful incentives to use a rewards credit card.

Whether you want to travel at a discount, rack up statement credits, or even cover your gift purchases for free, credit card rewards points are an excellent resource for optimizing your finances.

Justin Estes
Justin Estes

Justin Estes is a Senior Personal Finance Writer who is a recognized small business accountant, consultant, and credit card expert. His background in accounting and finance led to a passion for helping people make the most of their money and matching them with financial products that enhance their lifestyle. Justin attended Charleston Southern University where he double-majored in Finance and Accounting. Justin’s areas of expertise are credit cards, small business finance, accounting, and taxes.