How do credit card rewards work?

Credit card rewards allow cardholders to earn cash back, miles or points when they make purchases. How those rewards are earned and redeemed depends on the type of credit card, the card issuer and the cardholder’s spending habits. 

Learn more about credit card rewards, how to redeem them and how to maximize their value.

Key takeaways

  • Cardholders can earn rewards by using their rewards credit card.
  • Rewards typically come in the form of cash back, miles or points.
  • Choosing a card that fits your lifestyle and spending habits may make earning rewards more convenient.
  • Ways to redeem rewards vary depending on your rewards card and the card issuer. 

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What are credit card rewards?

Credit card rewards are typically offered in the form of cash back, miles and points. They can be earned by using a rewards credit card to make purchases. 

Learning about how different types of rewards programs work could help you use your card to your advantage. That could mean understanding the perks available to you and looking for ways to maximize your rewards with things like early spend bonuses. 

How do cash-back rewards work?

A cash-back card allows you to earn a percentage of your purchase back as cash. Generally, there are 3 categories of cash-back cards: flat rate, tiered and rotating:

Flat-rate cash-back card

With a flat-rate cash-back card, you earn the same percentage rate on every eligible purchase you make with your card. That rate applies to gas, groceries and a whole host of other purchases. 

Capital One Quicksilver and QuicksilverOne cards are examples of flat-rate cash-back cards. Both offer unlimited 1.5% cash back on every purchase, every day.

Tiered-category cash-back card 

A tiered-category card allows you to earn different levels of cash back for different spending categories. Tiered-rewards categories might include dining and entertainment.  

For example, SavorOne from Capital One is a tiered-category card. It offers unlimited 3% cash back on dining, entertainment, popular streaming services and at grocery stores.1  The Savor Rewards card has similar rewards. But there are differences between Savor and SavorOne that you may want to check out before you apply.

How do credit card companies know which purchases qualify for cash-back rewards? Typically, they attach a merchant category code to credit card transactions to categorize purchases. 

Rotating-category cash-back card 

Rotating cash-back cards offer rewards for purchases in a variety of spending categories during the year. In some cases, you can pick the categories. In other cases, the credit card issuer does. 

Some rotating cash-back cards allow you to earn bonus rewards in certain purchase categories. Bonus categories typically offer a higher rate than other purchases, which may be rewarded with a flat cash back rate. You may want to remember to activate your bonus categories each time they change in order to maximize the rewards you earn. How often bonus categories change is up to the card issuer.

How do miles and travel rewards work?

Credit cards that earn miles or travel points are generally known as travel rewards cards. With a travel rewards card, you typically earn rewards for every dollar you spend. Capital One VentureOne, Venture Rewards and Venture X cards are travel rewards cards.

Miles-earning cards typically offer flexibility on where and how you can redeem your rewards. Cards associated with a particular airline or hotel might be another option, but they may offer more limited rewards options. 

Keep in mind that the term miles doesn’t have anything to do with the actual distance you’ve traveled. The value of a mile and what you can do with it depends on the credit card issuer and the specifics of the rewards program it offers.

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How do points rewards work?

Rather than offering cash back or miles, some rewards cards offer points based on every dollar a cardholder spends. The value of those points may differ based on the kind of purchases they make. 

How you earn or redeem points varies based on your card. Some may be similar to a miles-earning card, while others may be more like a cash-back card.

Some points-rewards card issuers use what’s known as a fixed-point system. That typically means you’ll consistently earn the same amount of points for making a purchase in a particular spending category. Others may rotate spending categories to reward certain types of purchases more than others. In that case, keeping track of the rotating categories may help you earn the highest rewards for your spending. 

How do you redeem credit card rewards?

Ways to redeem credit card rewards may vary depending on your rewards card and the card issuer. Here are some common redemption options:

  • Redeem for cash. With cash back, points and even some miles cards, you can redeem your rewards for cash. This may be a preferable option with cash-back cards and some points cards. It may help to know that the value of miles and other points may be lower when you redeem them this way. After you redeem your rewards, your card issuer might mail you a check, or you may be able to apply rewards directly to your account as a statement credit.2
  • Earn a statement credit. You may be able to redeem your rewards as a statement credit. Statement credits typically help lower your monthly credit card balance. 
  • Cover your purchases. Rewards cards may also let you cover recent purchases. For travel cards, that might mean a recent travel-related expense. But cash back and some points cards might offer other ways to redeem. 
  • Redeem for travel. When you redeem rewards for travel, you typically use miles or points you’ve earned to make travel-related bookings like flights, hotels and rental cars. This option may be most common with travel cards but may apply to other types of rewards cards as well. Some credit card issuers may give you the option of converting points or cash-back rewards into travel rewards. 
  • Get gift cards. Some issuers let you redeem your rewards for gift cards to use at your favorite retailers.
  • Shop with online retailers. Capital One lets cardholders use rewards to shop at and through PayPal Pay with Rewards.3

How credit card rewards work in a nutshell 

To maximize your credit card rewards, consider choosing a card that matches your lifestyle and spending habits. Whether you’re a globe-trotting adventurer, an avid foodie or someone who wants to be rewarded for everyday purchases, there may be a Capital One rewards card for you. 

Compare Capital One rewards credit cards and benefits today.

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