Credit cards are more than a way to pay for items. Many credit cards offer benefits, including rewards. Understanding how credit card rewards programs work can help you choose the one that will pay you the most.

How Credit Card Rewards Programs Work

Rewards credit card programs pay you rewards for using your credit cards. It’s usually a percentage of the amount you spend. You might earn points, dollars, or miles depending on the type of rewards credit card you have.

Each card has different rules, but typically you earn rewards in specific categories specified by the credit card company. For example, some rewards cards have a few categories for earning rewards, and others have revolving categories that you must activate or track monthly, quarterly, or annually.

The Types of Credit Card Rewards Programs

There are three types of credit card rewards programs. When looking at credit cards, choose the one that offers the type of reward you’ll use.

Cash Back

Cashback credit cards pay you cash back for your purchases. For example, the Discover card pays 5% cash back on certain categories each quarter and 1% cash back each month. For January – March, cardholders earn 5% cash back on groceries, drug store purchases, and some streaming services. As you use your card, you’ll accumulate cash back that will be tallied in your rewards account.


Some rewards credit cards pay in points versus cash. It works the same because you can convert your points to cash, but it takes that extra step.

Cards usually pay 1 – 5x points for each dollar you spend. So, for example, the Chase Sapphire Preferred credit card pays 5x the points on travel purchases booked through Chase Ultimate Rewards, 3x on dining, grocery store purchases, and streaming services, and 1x on everything else.

You can redeem your points for cash rewards or gift cards. Each reward has a different value, so compare your options to make the most of your points.


Some credit cards are co-branded with airlines, such as United or American, and pay miles rather than cash or points. You can redeem your miles to pay for airfare tickets and sometimes hotels.

How to Earn and Redeem your Rewards

It’s easy to earn credit card rewards; just use your credit card. However, the cashback, points, or miles may take one to two cycles to reach your account, so be patient.

Once you receive rewards, you can redeem them. Each redemption option has a threshold, so you’ll see which options are available when you log into your credit card account and view the rewards portal.

Some options may include the following:

• Statement credit (this doesn’t apply to your minimum payment) • Cash back via a direct deposit or check in the mail • Gift cards to partner retailers • Select merchandise, such as electronics or jewelry • Money toward your travel expenses

Choosing the Best Credit Card Rewards Program

Choosing the best rewards credit card program is important. For example, if you don’t travel, a miles rewards program wouldn’t make much sense. Think about the rewards you’d use the most when choosing a credit card.

Also, consider the required categories you must spend to get the rewards. For example, it doesn't make sense if a credit card pays the most points for dining out, but you don’t eat out often.

There are hundreds of options, each with different category requirements. Choose the one with the categories you spend the most often. Also, consider if you can handle rotating categories, like the Discover card. Some cards require you to activate the ‘bonus’ categories to earn the rewards. Decide if you want a credit card that requires ‘work’ to get the rewards or a card that pays the same rewards no matter what you spend.

Final Thoughts

Reward credit card programs are a great way to earn a little extra money. There are hundreds of options, some with annual fees and some without. Consider which card suits your needs the most and use it wisely.

Charge the items you spend, but pay the card off in full each month. You’ll avoid paying interest and earn cash or points back for making purchases you always make.