Credit Card Rewards Guide

Credit card rewards are points, miles or cash back that you earn in return for making credit card purchases. More than 60% of credit cards offer rewards, including options for people of all credit levels, and choosing the best rewards credit card for your needs could save you hundreds of dollars on purchases you’d make anyway.

Below, you can learn more about how credit card rewards work, from earning rewards to redeeming them. You can also check out tips for avoiding common mistakes and choosing the right rewards card for your needs.

Opinions and ratings are our own. This report is not provided, commissioned or endorsed by any issuer. WalletHub independently collected information for some of the cards on this page.

What is a Rewards Credit Card?

A rewards credit card is a credit card that gives cash back, points, or miles to the cardholder when they charge purchases to the card. Credit cards with rewards are available to people of all credit levels, and the best ones can save cardholders hundreds of dollars per year.

In addition to points, miles or cash back, some rewards credit cards offer annual fees as low as $0, 0% introductory APRs, and various other perks. There is no fundamental difference between a credit card with rewards and a credit card without rewards.

Popular Rewards Credit Cards in 2024

Types of Credit Card Rewards

Credit card rewards come in three basic currencies: cash back, miles, and points.

Cash Back

Cash back is undoubtedly the most straightforward type of rewards. With a cash back credit card, a certain percentage of what you paid for your purchases will be returned to you. The most common way to redeem earned cash back is for a statement credit, although some issuers will give you the option of receiving a check in the mail as well.

One percent cash back across all purchases has become the industry standard. Many credit cards offer 1% as a base earning rate that is supplemented by higher earning rates in specific spending categories. Unlike points or miles, cash back rewards cannot be devalued by credit card companies.

Miles

There are two types of credit card miles: those tied to a specific airline, and generic miles that can be put toward any travel-related expense.

The former are offered by co-branded credit cards and are best for brand-loyal frequent travelers. The latter are great for people who travel often enough to make use of travel-oriented rewards, but don’t want to be tied down to a particular travel provider.

Points

There are two types of credit card points: hotel points and generic points that are primarily redeemable toward merchandise. You should only opt for points-based credit card rewards if you are sure that you’ll be able to redeem often enough to benefit consistently, avoid devaluation, and maximize value.

To learn more, check out WalletHub’s page focusing on the different types of credit card rewards.

How to Earn Credit Card Rewards

Much like rewards are offered in different currencies, they are also distributed to cardholders for different reasons.

Initial Bonuses: It is common for credit card companies to offer well-qualified new customers what amounts to signing bonuses. More specifically, they’ll give you a lump-sum rewards bounty – 40,000 miles for example – after you make your first purchase or as a result of spending a specified amount during the first few months that your account is open.

Taking advantage of an attractive initial bonus is a great way to supplement another card’s ongoing earning rate.

Spending-Based Rewards: The most common way to earn rewards is by making purchases with your credit card. You should strive to get a card that offers attractive earning rates in your biggest expense categories. In most cases, no rewards are given for cash advances, balance transfers, or the use of checks provided by your credit card company.

Anniversary Bonuses: Some credit cards will even give you a free flight, hotel night, or a certain amount of points, miles or cash back each year on your account anniversary. This is often done to justify an annual fee, and you have to make sure the juice is worth the squeeze before agreeing to re-up.

How to Redeem Credit Card Rewards

Most credit cards enable you to redeem the rewards that you earn in certain denominations (e.g. multiples of $25 cash back). You will generally be presented with a few different options in terms of how you can redeem your rewards as well. Your goal should be to redeem your rewards in a way that gets the biggest bang for your buck.

Statement Credit: Perhaps the simplest way to redeem rewards is via statement credit. This involves crediting your rewards balance to your account and therefore serves to help you pay your bill.

Check: You can generally request that your rewards balance be cashed out and mailed to you via check.

Gift Cards: More and more issuers are offering gift card redemption through their online shopping malls. Redeeming a gift card from one of your favorite retailers is often better than redeeming your rewards directly for merchandise through a credit card shopping mall, which tends to be a poor value proposition.

Merchandise: You can often buy consumer goods – ranging from sporting equipment to electronics – in credit card shopping malls as well. Credit card companies often put a dollar figure (or a discount percentage) next to each item in their online shopping store, to make it look like you’re getting a good deal. However, that dollar figure is still likely higher than what you’re going to find at Amazon, for example.

Charity: Unbeknownst to most consumers, many credit cards allow you to redeem your rewards for a charitable donation. If your credit card company offers no such option, or you’d rather donate to an organization other than the one(s) affiliated with your issuer, you can always redeem for cash or a gift card and give back that way.

Special Experiences: Membership in certain high-end rewards programs enables customers to qualify for certain “unique experiences.” For example, this might entail exclusive access to event tickets, celebrity meet-and-greets, etc.

Is a Rewards Credit Card Worth It?

Rewards credit cards are worth it if you earn more value from the rewards than you spend on fees and interest, and if you don’t have to spend more than you usually would to earn the rewards. Some of the best rewards credit cards can save the average person $2,000+ over a two-year period, but if you plan on carrying a balance from month to month, the high interest rate can eat away at your savings.

If a rewards card has no annual fee, it’s pretty easy to determine the card is worth it. However, you shouldn’t rule out a card if it has an annual fee. A card may have enough rewards and perks to cover the cost of the annual fee.

Below, we’ll provide some more tips on how to choose the best rewards credit card and avoid common pitfalls.

How to Choose the Best Rewards Credit Card: 8 Tips

• Focus on rewards if you have good/excellent credit and you pay your bill in full every month. If you have less than good credit, focus more on a card designed to help you build credit, even if it doesn’t offer rewards.
• If the card has an annual fee, check to see if you believe you will earn enough rewards to offset the cost of the annual fee.
• Find a card that complements your spending habits. Don’t get a card that offers a sign-up bonus that can be achieved by spending $5,000 in 4 months when you spend no more than $2,500 in the same time frame, for example.

• Only opt for travel rewards if you will realistically be able to redeem what you earn for a free vacation within 12-18 months. Otherwise, you’ll be at risk of devaluation and you won’t be benefitting enough to make your rewards card as worthwhile as it could be.
• Don’t gravitate to the cards with the absolute biggest initial bonuses if you can’t actually use them. For example, a co-branded airline card with an 80,000-mile initial bonus will be useless to you if that airline does not fly out of your local airport.
• Choosing a single credit card to take care of all your needs will naturally leave you with mediocre terms across the board. Using multiple cards, each for a different purpose, such as a 0% APR credit card to pay off your debts and a rewards card for everyday expenses, will enable you to get the best possible financing terms as well as the most lucrative rewards for your spending habits.
• If you don’t get approved for your card of choice and you believe that your credit standing and disposable income meet the card’s requirements, you may want to check your credit report for mistakes or even submit a reconsideration request.
• You should choose a card based on your credit. If you have above-average credit, find the card that offers the highest cash back earning rates in your biggest recurring spending categories and make it your primary spending vehicle. If you have limited or damaged credit, your best course of action is to open a credit card with no annual fee in order to get positive information flowing into your credit reports. If you can score some rewards in addition to that, great, but don’t make it your priority at this point.

What to Watch Out for with Rewards Credit Cards

Earning Limits

It’s common for rewards programs to implement quarterly or annual earning limits – either in certain spending categories or across the board. This enables issuers to control their profit margins by applying a ceiling to the value that you extract from their products.

Oftentimes, earning limits will have no practical effect on your situation. That would be the case if a credit card offers 6% cash back on supermarket purchases up to $6,000 annually and you only spend $3,000 at the grocery store each year, for instance. But in other cases, earning limits may prevent you from accruing rewards late in a given billing cycle or the calendar year. You should therefore always read a program’s fine print and consider how it applies to your spending habits before signing up.

Rotating Categories

Rotating categories enable issuers to advertise a high maximum earning rate. For example, you may have seen offers touting the ability to earn 5% cash back in popular spending categories that change on a quarterly basis. The problem is that you have to sign up for the ability to earn that rate each quarter when the updated discount categories are announced, so you can lose track of when to you need to sign up or forget entirely.

Redemption Limitations

What can you redeem your rewards for, and do you stand to get good value on redemption? Those are two key questions that you must ask yourself when considering a rewards credit card. A big pile of rewards might seem appealing, after all, but it’s ultimately only as good as what you can get for it. That’s especially true when it comes to travel rewards, as not all points and miles carry the same dollar value, and not all issuers work with the same airlines and hotel chains.

In fact, consumer interest in redemption versatility is driving some issuers to expand their network of corporate partners in order to give customers more options and make their rewards programs more appealing.

“The more embedded your product/service is in the overall consumption patterns of a given consumer or consumer segment, the more likely your product is to become a habitual purchase,” said Hope Jensen Schau, the Executive Director of the McGuire Center for Entrepreneurship at the University of Arizona’s Eller College of Management. “The trend toward cobranding promotions and cobranded versatile rewards is likely to grow. If the partnership is well-conceived, it adds value to the consumer and inspires solidified preference and purchase decisions.”

Rewards Devaluation

When rewards are issued in the form of points or miles, issuers typically set plateaus you must reach in order to redeem these points/miles for certain goods and services.

However, these plateaus are not guaranteed to be static, and whenever an issuer increases the number of points/miles needed for redemption, the points/miles you have saved effectively become worthless all of a sudden.

In order to avoid rewards devaluation, we recommend redeeming your points/miles as frequently as possible. This will not only minimize the number of points/miles that are vulnerable to devaluation at any given time, but will also allow you to benefit from your rewards credit card more often.

Rewards Expiration

While most issuers have done away with expiration dates in the face of consumer anger, certain rewards programs may still have them. That’s why it’s so important to search through the fine print of a credit card offer for mention of the word “reward” and any caveats that might be enumerated there [hint: on your keyboard hold down the CTRL and F buttons to enable your browser’s text search function].

It’s also important to note that you can’t keep the rewards you’ve accrued when you close an account. So always make sure to cash out before saying goodbye.

Rewards-Based Overspending

Don’t spend a lot more than you ordinarily would just to earn some rewards, even if the prize you’re chasing is a hefty initial bonus. This is an all-too-common pitfall.

“Appealing loyalty offers may drive actual increased consumer spending as consumers modify normal spending to take advantage of compelling offers,” Dan Horne, a professor of marketing at Providence College, told WalletHub in explaining the value of rewards programs to the companies that offer them.

There are essentially two types of rewards-based overspending, according to Schau. For starters, “Consumers may be inspired to purchase a given product or service earlier than anticipated to take advantage of a loyalty promotion or stockpile,” Schau says. “In rarer cases, consumers might be inspired to purchase something they would not ordinarily purchase or thought they could not afford based on a loyalty program.”

Either way, there’s no sense in adding to the billions of dollars that we collectively owe to credit card companies just to score a few miles or a bit of cash back. Rewards only benefit you if they’re used to subsidize ordinary spending habits.

Unclear Rewards Value

For cash back cards, your rewards are already in the form of dollars, but on miles and points-based credit cards, it’s more difficult to determine what your rewards are really worth. Credit card companies will try to push you toward less lucrative redemption methods, which means you should know how to calculate the dollar-value of any non-cash redemption option before using it. For example, with 10,000 points, you may be able to get $50 cash back, a $75 gift card, a flight that normally costs $200, etc. By comparing your options in this manner, it will become abundantly clear which one will provide the best return on investment.

Credit Card Rewards Statistics

WalletHub conducts quarterly analysis of the credit card landscape, including rewards earning rates for different credit segments and types of cards. This information will give you a sense of what to expect from a rewards card and can serve as a useful point of reference when you’re comparison shopping. It may also help you spot trends.

Ask The Experts:  The Value of Rewards Programs

1. How do loyalty programs affect consumer spending habits?
2. How do you see the trend of companies establishing versatile rewards partnerships with other businesses playing out over the next few years?
3. How do companies go about selecting their rewards partnerships?
4. How do companies use loyalty programs differently for customer acquisition vs. customer retention?
5. How are credit card-based loyalty programs different from others?

Ask the Experts

Frances Turner
Assistant Professor of Marketing at Menlo College
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Staci Lugar Brettin
Assistant Professor of Marketing and Management in the College of Business at Indiana Tech
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Hope Jensen Schau
Gary M. Munsinger Chair in Entrepreneurship & Innovation, and Associate Dean of the Eller College of Management at University of Arizona
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Dan Horne
Associate Professor of Marketing in the School of Business at Providence College
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Mark Weber
Clinical Assistant Professor of Marketing and Director of the Integrated Marketing Communications Program at Nazareth College
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Brad Brooks
Professor of Marketing in the McColl School of Business at Queens University of Charlotte
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