Here’s How Credit Card Points and Miles Actually Work

Like free stuff? By taking advantage of credit card reward programs, you could earn free trips, gift cards, and even cash with your daily spending.

Credit card companies want to encourage you to sign up, so they’ll often advertise incentives such as hefty sign-up bonuses or cashback offers to encourage consumers to get a card. Depending on the card, you may also be able to earn rewards on purchases you buy which can be redeemed to travel, cash back, and more.

Though not all of the best rewards credit cards are structured the same way, one thing is clear — knowing how to use them the right way can often provide maximum return. Here’s how credit card points work and how you can get in on the action.

What’s the difference between points, miles, and cashback rewards?

Credit card rewards programs typically allow users to earn points, miles, or cash back.

How cashback rewards work

The simplest type is usually cashback. Whenever you make a qualifying purchase, your credit card issuer will offer a percentage of it back in cash automatically.

For example, the Blue Cash Everyday^® Card from American Express offers 3% cash back at U.S. supermarkets, U.S. gas stations, and U.S. online retail purchases (up to $6,000 per year on purchases in each category, then 1%); and 1% cash back on other eligible purchases. (Cash back is received as Reward Dollars, which you can redeem for statement credits.)

As you can see from this Amex card, some issuers may put a cap on how much you can earn after a certain amount, then reduce your cashback offer. Other issuers may offer unlimited cash back, but they may not offer as high of a rate as this Amex card.

How points and miles work

The other types of rewards you can earn with a credit card — points and miles — often work similarly. Both can be earned based on how much you spend.

For example, the Chase Sapphire Preferred^® Card offers 5X points on travel purchased through Chase Travel℠; 3X points on dining, select streaming services, and online groceries; 2X points on all other travel purchases, and 1X points on all other purchases.

Another example, the Capital One Venture Rewards Credit Card offers 2 miles per dollar on every purchase, every day, 5 miles per dollar on hotels, vacation rentals and rental cars booked through Capital One Travel and 5 miles per dollar on Capital One Entertainment purchases through 12/31/25.

You can also typically redeem points and miles for similar things. Sticking with our example cards above, both the Sapphire Preferred and Venture Rewards cards allow users to trade in points or miles for travel, cash back, gift cards, or merchandise, though your trade-in value for each point (or mile) may vary depending on which option you choose.

In some instances, however, “points” and “miles” can’t be used so interchangeably.

With co-branded travel cards, for example, you may only be able to redeem miles for perks at specific airlines or hotels. Take the Delta SkyMiles^® Gold American Express Card — you can earn miles with every dollar you spend, but they can only be traded in for travel on Delta or its airline partners.

How do you earn points, miles, and cash back?

You can earn points in a bunch of different ways, some of which won't require you to do anything different from what you do right now.

Earn on everyday purchases

The most obvious is by using your card on everyday purchases. Instead of using cash at the grocery store, use your card instead and rack up points or cashback rewards for each dollar you spend.

Earn on welcome and sign-up bonuses

Another way to earn rewards is by earning sign-up bonuses. Many credit card issuers roll out special bonus offers to new cardholders if they can meet their requirements — typically making a certain amount of purchases within a specific amount of time.

For example, the Chase Freedom Flex^® rewards you with a $200 cash bonus if you make $500 worth of purchases within the first 3 months of account opening.

Earn when you refer a friend

Cardholders can even earn points by referring other people to sign up for a credit card. Many card issuers have referral programs that offer a sizeable reward if someone signs up using your special referral link.

Earn when you add authorized users

You can also add an authorized user to your account to help earn even more points.

By adding them to your account, every purchase they make on the card will earn points in your account. While earning rewards this way can be great, be cautious about who you add to your account — you’ll also be on the hook to make sure the purchases they make get paid. Also, there may be a fee to add an authorized user, so make sure it makes sense for your bottom line.

How many points can you really earn?

As for how many points or cashback rewards you can earn, it all depends on your spending habits and the card you use.

Some credit cards offer a flat rewards rate, while others offer higher tiers for certain spending categories. For example, the Capital One Savor Cash Rewards Credit Card offers 3% cash back at grocery stores (excluding superstores like Walmart® and Target®), on dining, entertainment and popular streaming services; 5% back on hotels and rental cars booked through Capital One Travel (terms apply); 8% cash back on Capital One Entertainment purchases; and 1% cash back on all other purchases.

There are also cards that offer rotating bonus categories you can opt-in to claim. In those cases, each quarter (or other specified amount of time), your credit card will offer a higher rewards rate for different spending categories. Once that quarter is over, the bonus categories will change again.

How much are your points worth?

Point values will differ based on how you redeem them and which rewards program the points belong to. Generally speaking, credit card points are often worth about one cent each when you redeem them for travel or merchandise. For example, 60,000 Capital One Venture miles equals $600 worth of travel.

However, there are rewards cards and programs that may offer a higher redemption rate for certain items. The value of Chase Ultimate Rewards points, for instance, can fluctuate if you’re booking travel.

The Chase Sapphire Preferred^® Card offers 25% more value when you book travel via Chase’s online portal, whereas the Chase Sapphire Reserve^® offers 50% more value.

You may even be able to transfer points and miles to a travel partner and get more bang for your buck. If you can transfer credit card points to an airline’s loyalty program, for instance, you may find your points carry more value there. However, whether or not this is a smart move depends on the specific credit card and airline reward programs — you’ll want to read the fine print and do the math to ensure you’re really getting the best deal.

How do you redeem your rewards?

How you redeem your rewards depends on the credit card you own.

How to redeem for cash back

Cashback credit cards, for example, often give you the option of redeeming your rewards as a statement credit, via a bank transfer, or as a check that gets mailed to you.

How to redeem your points and miles

When it comes to points and miles, you can usually redeem them in a few different ways.

Redeeming points for merchandise or gift cards is typically available through your card issuer’s online shopping portal. Once you log in, you should be able to see the types of items you can redeem with the amount of points you have.

Redeeming rewards for travel works pretty much the same way. Most major credit card companies have a travel booking portal you can use to book hotels, rental cars, flights, and more with your points. In some cases, you can transfer your rewards to a travel partner — such as a specific airline — and redeem them using their portal.

The top rewards credit cards for newbies

It’s easy to get overwhelmed by credit card rewards and the multitude of options available. Consider these rewards credit cards for newbies:

Head’s up: Many rewards credit cards require applicants to have a good to excellent credit score. Check yours for free on a service like Credit Sesame so you know where you stand.

It’s also a good idea to look on a credit card issuer’s website to see if you can prequalify for a card — that way you can see if you might be approved without dinging your credit.

What to consider before choosing a rewards card

Earning rewards can be fun, but read the fine print before signing up for any card.

Annual fees

First, carefully consider whether it’s worth it to sign up for a rewards card that charges a high annual fee. You want to make sure the rewards you earn will offset the annual fee.

Let’s say you have a cashback card with an annual fee. If you want to break even (or preferably, earn additional money), you’ll need to spend a certain amount on the card in order to earn enough cash back to offset the annual fee.

Limits on how rewards can be redeemed

Second, be sure to read the fine print to see if there are limits to how you can redeem your rewards. Some cards may have blackout dates or other restrictions, for instance, meaning you can’t book travel at certain times of the year. Other cards may have rewards that expire. If so, that means you’ll need to use up your points within a certain amount of time or you forfeit them.

Earning caps

Something else to consider are rewards earning caps. Some credit cards offer unlimited earning potential, while others set maximums on what you can earn.

For example, the Chase Freedom Flex^® offers 5% cash back on rotating quarterly categories you activate (on up to $1,500 spent) and travel purchased through Chase Travel℠, whereas the Capital One Savor Cash Rewards Credit Card offers unlimited 3% cash back on grocery stores (excluding superstores like Walmart® and Target®), on dining, entertainment and popular streaming services.

Paying off your balance

Finally, remember that while it’s exciting to earn rewards, being a responsible credit card owner is highly important. Overspending on a credit card for the sake of earning rewards could land you in debt. If that happens, the interest you pay could quickly cancel out the value of any rewards you end up earning. Make sure you can afford your purchases and pay off the balance every month.

FAQs

Bottom line on points, miles, and cash back

Earning credit card rewards can be a great way to earn free stuff, from flights to gift cards. Once you get that card in your hands, spend wisely to rack up rewards, and you’ll be well on your way to cashing in later.

Lucrative, Flat-Rate Cash Rewards

Wells Fargo Active Cash^® Card

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Wells Fargo Active Cash^® Card

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Rates and fees

Current Offer

$200 cash rewards bonus after spending $500 in purchases in the first 3 months

Annual Fee

$0

Rewards Rate

Earn unlimited 2% cash rewards on purchases

Benefits and Drawbacks

Benefits

• Low spend threshold for its welcome offer — $200 cash rewards bonus after spending $500 in purchases in the first 3 months
• Cell phone protection benefit (subject to a $25 deductible)
• Can redeem rewards at an ATM for literal cash

Drawbacks

• Foreign transaction fee of 3%
• No bonus categories

Card Details

• Select “Apply Now” to take advantage of this specific offer and learn more about product features, terms and conditions.
• Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months.
• Earn unlimited 2% cash rewards on purchases.
• 0% intro APR for 12 months from account opening on purchases and qualifying balance transfers. 19.74%, 24.74%, or 29.74% Variable APR thereafter; balance transfers made within 120 days qualify for the intro rate and fee of 3% then a BT fee of up to 5%, min: $5.
• $0 annual fee.
• No categories to track or remember and cash rewards don’t expire as long as your account remains open.
• Find tickets to top sports and entertainment events, book travel, make dinner reservations and more with your complimentary 24/7 Visa Signature® Concierge.
• Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible.