How Do Rewards Credit Cards Work?

Many people (falsely) believe that they understand how credit card rewards work, but they really don’t. In fact, many credit card companies rely on the fact that people don’t really look into how their credit cards work. Instead, they do what they think that they are supposed to do, and they end up not getting enough rewards.

So how do they really work? Let’s break it down:

Types of Rewards

There are three different types of rewards: cash, points, and miles.Cash isn’t always actual cash, but rather a type of credit that takes away from your credit card bills. Sometimes it will be automatic, but on other cards you will have to wait until you get a certain amount of “rewards” before you can turn it into cash.

Points can sometimes be used as cash, they can also be points that are used to shop in some sort of portal. Or, you can get miles that you can turn into airfare.

Those are pretty self explanatory. However, there are a few other categories that each of those categories fit into:

Fixed Value: You know what you will get when you spend money using this card.

Transferable: You can use your points through programs directly related to the card and with some other companies as well through a transfer.

Co-Branded: You can’t transfer, but you get special perks and privileges with the card’s rewards.

Tiered Rewards or Flat Rewards? What is Better?

When looking at how a rewards credit card works, another thing you may want to look at is how you earn rewards. You may earn a set number of rewards for every dollar you spend. At times, this will change with where you shop or at what type of establishment that you shop. Tiered rewards have you earning more and more rewards as you continue to spend more money.

What to Look Out For with Credit Card Rewards

While some programs are better than others, there are a few things that multiple programs do that you should be on the lookout for when finding the right program for you. The best rewards programs are only available to those who have good credit scores. Or they have strict limits about who can actually get a credit card with those rewards. Make sure to always read the fine print.

Most importantly, pay attention to how things change over time as you use your card more frequently.