How Do Credit Card Points & Miles Work

Credit card points and miles can add up.

These days, it’s not usual to have least one credit card that earns point or miles. Points can be redeemed for free merchandise, travel or even cash back. Understanding how credit card points and miles work is critical to maximizing the value of your credit card accounts. However, there are a wide variety of rewards programs out there. Terms and conditions, as well as how points are earned and redeemed, change quickly. Even different cards from the same credit card issuer can have widely different rules and point values. The first step to getting a handle on these programs is understanding how credit card points and miles work.


During the days of the credit boom, credit card companies were looking for a way to improve the value of their offerings. Annual fees were dropped to zero on many cards, and interest rates were set at historic lows. However, since many credit card issuers used these tactics, something else was needed. Credit card reward programs that had once been used only on certain specialized cards for niche markets such as frequent flyers were expanded. Even credit cards without individualized, brand-name rewards programs were added to generic programs such as Visa Signature Rewards, which is offered on credit cards issued by numerous banks.


Credit card rewards are a way to increase the value of a credit card to the customer. However, running these programs is not free. The money earned by each card has to cover the expenses it generates to make a profit. While some rewards are either purchased at a discount from the supplier or made profitable via another arrangement, the overall cost of running the program must be covered by revenue generated from the cards. Cardholders not taking full advantage of their credit card’s reward programs are paying for something they are not using.


Credit card points and miles are earned whenever the credit card is used. The standard model is that for every one dollar spent on the card, one point or one mile is earned. However, some cards have special provisions that allow additional points to be earned in certain situations. Branded cards may offer more points for purchases made from that company. For example, a credit card associated with a particular airline or hotel will offer more points for each dollar spent directly with that airline or hotel. In addition, some credit cards offer differing point earnings based upon certain categories of spending, such as offering more points for each dollar spent at gas stations or grocery stores.


Points and miles that are earned may be redeemed for rewards. Rewards also vary greatly from one card to the next. Cards may offer free travel as one of their rewards. Redeeming points or miles for a free airline ticket is a common use of reward points. Some programs have a flat redemption table in which a certain range of total miles flown, or a certain price range of tickets, can be purchased with a specific number of miles. Redeeming 30,000 miles for a round-trip ticket within the 48 contiguous United States is one common offer. Other rewards are based upon the price of the item, such as 1,000 miles for every $1 the ticket costs.

Some cards allow points and miles to be redeemed for cash back or statement credits. Again, some programs have flat fee rewards such as a $100 statement credit for 10,000 points. Others allow the cardholder to customize such rewards by offering $1 in statement credit for every 1,000 points.


In an effort to distinguish one program from the next, and in an attempt to hide how one reward program compares to another, credit card issuers often change how points are earned, as well as how those points may be redeemed for rewards. One program may offer 2 points for each dollar spent, but then charge 20,000 points for a $100 cash back reward. Another program may offer just 1 point for each dollar spent, but offer the same cash back reward for just 10,000 points. In effect, this makes both programs the same for that particular reward.


Beware of creating additional spending in order to generate extra points or miles. This extra spending can lead to increased interest payments or larger balances, both of which will cost more than the points will ever be worth. Only use credit cards that offer rewards points and miles to buy what you would normally buy.