Credit card rewards: What are they & how do they work?

Credit card rewards allow you to earn cash back, miles or points on eligible purchases. How those rewards are earned and redeemed depends on the type of credit card, the card issuer and your spending habits.

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

What you’ll learn:

• Credit card rewards typically come in the form of cash back, miles or points and are earned by making eligible purchases with the card.

• Ways to redeem rewards vary depending on the type of rewards card and the card issuer.

• Choosing a card that fits your lifestyle and spending habits may make earning rewards more convenient.

Rewards credit cards typically give you a percentage or portion back for every dollar you spend with the card on eligible purchases. Rewards are usually offered in the form of cash back, miles or points, and the value of the rewards varies by card type and issuer. 

Your rewards accumulate over time with every eligible purchase until you redeem them. You can exchange them for the likes of statement credits, gift cards and travel expenses.

Different types of rewards programs—cash back, miles or points—typically work differently in terms of how much you can earn and where you’re spending. Learning how each works could help you maximize your credit card rewards, like aligning the type of card you choose with your spending habits or leveraging early spend bonuses.

Here’s a closer look at how you can earn rewards with each type of credit card rewards program:

A cash back card allows you to earn a percentage of your purchase back as cash. So if your card offers 3% cash back and you spend $100 on eligible purchases, you’ll earn $3 in rewards.

Generally, there are three 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 on every eligible purchase you make with your card. For example, you might earn 2% cash back on every purchase, no matter where you use the card. 

• Tiered-category cash back card: A tiered-category card allows you to earn different levels of cash back for different spending categories. For example, earning 3% cash back on dining and entertainment purchases and 1% cash back everywhere else. 

• Rotating-category cash back card: Rotating-category cash back cards offer rewards for purchases in a variety of spending categories that may change throughout the year—like earning 5% cash back at gas stations in one quarter, then switching to grocery stores the next. 

You can keep accruing cash back rewards each billing cycle until you’re ready to redeem them. Cash back rewards typically won’t expire for the life of your account, as long as it’s open and in good standing.

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. You can earn miles rewards with two types of cards:

• General travel rewards cards: General travel rewards credit cards typically offer rewards in the form of miles, with flexibility on where and how you can redeem your rewards. For example, you can use them toward travel expenses like flight tickets or hotel stays, or transfer them to participating airline or hotel partners.

• Co-branded rewards cards: Co-branded rewards cards are usually associated with a particular airline or hotel. So they may offer more limited redemption options, as you’ll have to redeem any rewards you earn with that specific brand. 

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 depend on the credit card issuer and the specifics of the rewards program it offers.

Some rewards cards offer “points” based on every dollar a cardholder spends. The value of those points may differ based on the types of purchases the cardholder makes. And how you earn or redeem points varies based on your card.

Credit card points rewards programs can sometimes be slightly more complex because of the varying points values and redemption options. In some cases, you’ll consistently earn the same number of points for making a purchase in a particular spending category. Others may offer tiers with different earning levels for specific spending categories. Some may rotate spending categories to reward certain types of purchases more than others. So keeping track of the rotating categories may help you earn the highest rewards for your spending.

Regardless of whether you’re earning cash back, miles or points, you typically have several ways to redeem credit card rewards, including:

• Earning a statement credit or cash: Many cards offer cash back rewards in the form of a statement credit or direct deposit. Sometimes you can opt for a check, too.

• Redeeming for travel: When you redeem rewards for travel, you typically use miles or points you’ve earned toward travel-related bookings like flights, hotels and rental cars.

• Covering your purchases: Rewards cards may also let you cover some or all of your 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. 

• Getting gift cards: Some issuers let you redeem your rewards for gift cards to use at your favorite retailers.

• Shopping with online retailers: Capital One cardholders can use rewards to shop at Amazon.com and through PayPal® Pay with Rewards.

Credit card rewards can come in the form of cash back, miles or points and can be redeemed in several different ways, from statement credits and gift cards to covering travel costs. Matching the rewards program to your lifestyle can help you maximize the benefits it offers. 

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 today.

Whether your idea of a good time is getting out on the town, traveling the world or staying in, Capital One has a rewards card that may fit your lifestyle.

• See if you’ll be approved for rewards cards, with no harm to your credit scores. 

• Explore travel and miles rewards credit cards with unlimited miles you can actually use. 

• Earn unlimited 1.5% cash back on every purchase, every day, with a cash rewards credit card.

• Earn cash back whether you’re going out or staying in, with a dining and entertainment credit card.