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How Credit Card Points & Miles Work

How Credit Card Points & Miles Work

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This article was last updated Nov 15, 2019. Terms and conditions may have changed. For the most accurate information, please consult the issuer website.

Credit card users can earn rewards in the form of points, miles or cash back, depending on the type of card they use. For many cardholders, cash back may appear to be the most valuable option, especially when they don’t understand the value of points and miles and how to redeem them.

And who can blame them? It seems like every airline, hotel, credit card issuer, and sandwich shop has created its own complicated loyalty program to lure you in with the promise of free stuff. Although some believe that collecting points and miles is not worth the effort, others have found that these rewards can often be far more valuable than cash back. But first, you need to understand the basics.

In this post:

What are points and miles?

Points and miles are units of currency that are issued by credit card companies, airlines, hotels, stores, restaurants and other companies to reward members for their loyalty. Traditionally, credit card miles can be earned and redeemed for travel, while credit card and loyalty points can be earned and redeemed for other purchases.

However, when it comes to credit cards, rewards may also be redeemed for statement credits, gift cards, charitable donations, checks, merchandise and more. Credit card companies often allow cardholders to earn 1 point or mile per dollar spent on general purchases, as well as extra points or miles in different spending categories, such as restaurants, airfare, rental cars and gas.

What are points and miles worth?

There is one problem with thinking of points as just another currency; you can’t freely exchange points with dollars. So even though you can look up the exchange rate between the British Pound and the U.S. Dollar, there is no agreed upon value for a Delta Airlines SkyMile or a World of Hyatt point. Instead, the value of a credit card reward is determined by what you can redeem them for.

Sometimes that value is easy to figure out. For example, miles in Capital One’s Venture Rewards program are worth 1 cent each as a statement credit towards any travel expense — pretty simple. On the other hand, a Delta SkyMile can be worth less than 1 cent towards a ticket purchase (using their Pay With Miles option), or as much as 5 cents when used for an international first class ticket at the lowest mileage rate. For instance, a Delta One roundtrip ticket to Europe can run 98,000 Delta SkyMiles, but if that ticket sold for $3,600 (and is worth that amount to you), then each mile was worth just under 4 cents toward the award ticket.

That said, there are some basic guidelines to help you determine what your points are worth. Many credit card points are worth approximately 1 cent each towards gift cards and travel reservations. Major loyalty programs that follow this general rule include Chase Ultimate Rewards®, American Express Membership Rewards®, and Citi ThankYou® Rewards. Furthermore, several credit cards allow you to be reimbursed for some purchases using points or miles. So, in that regard, they do have cash-like value.

But when it comes to airline and hotel programs, all bets are off. Some points can be worth less than 1 cent each, while others can be worth much more, depending on the program and how wisely the points are spent.

In some cases, points can be transferred from one program to another, so it helps to know how much each company’s points are worth in order to maximize their value.

How do you earn points and miles?

You can earn credit card rewards in myriad ways. Most commonly, points and miles are earned on purchases made using your credit card as well as from sign-up and welcome offers. But you can also sometimes earn rewards from credit card referrals and annual offers.

Sign-up and Welcome offers. Sign-up and welcome offers allow you to earn an influx of rewards after charging a certain amount on your credit card within a specified time frame. While the amount of the bonus and the required spend threshold vary from card to card — and may change frequently — the amount of time you have to earn the offer is typically three months. Keep in mind, though, that larger sign-up and welcome offers often require higher spend thresholds to earn the offer.

For example, the Chase Sapphire Preferred® Card lets cardholders Earn 80,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $1,000 toward travel when you redeem through Chase Ultimate Rewards®. The Capital One® VentureOne® Rewards Credit Card, on the other hand, offers a one-time bonus of 20,000 miles once you spend $1,000 on purchases within 3 months of account opening, equal to $200 in travel.

Rewards rates. Credit cards often encourage cardholders to earn points or miles when they use their card to make certain types of purchases. Depending on the credit card, you can earn rewards on travel, groceries, dining, gas or other purchases.

For example, the American Express® Gold Card lets you earn Earn 4X Membership Rewards® Points on Restaurants worldwide, including takeout and delivery. Additionally, earn 4X Membership Rewards® points at U.S. supermarkets (on up to $25,000 per calendar year in purchases, then 1X), and 3X Membership Rewards® points on flights booked directly with airlines or on amextravel.com.

There are also cards available, like the Discover it® Miles card, that offer a flat rewards rate on every purchase. The Discover it® Miles lets cardholders earn unlimited 1.5 miles for every dollar spent on all purchases - with no annual fee. This will save you the hassle of keeping up with bonus categories or spending maximums.

Credit card referral bonuses. Several credit card issuers offer bonus points or miles when you refer a friend to one of their credit cards, and the friend is approved. For example, Southwest Rapid Rewards® Premier Credit Card members can earn 10,000 bonus points for each friend who is approved for any personal or business credit card from Southwest — up to five referrals per year, for a total of 50,000 bonus points.

Loyalty program rewards. Depending on the loyalty program, you can usually earn points or miles when you book flights, reserve hotels or purchase merchandise through the program’s portal — even if you aren’t a cardholder. For example, Southwest Rapid Rewards loyalty program members can earn points when they fly on Southwest Airlines, stay at partner hotels, dine at participating restaurants and purchase merchandise through its portal.

Additional points and miles. Some credit cards also offer an annual bonus each year on your card member anniversary. Or, you may be able to earn extra rewards when you add an authorized user to your card account.

How can you use your points and miles?

Once you earn your rewards and miles, you’ll need to know how to use them. Depending on the credit card or loyalty program, you may be able to redeem your points and miles in a variety of ways, including travel, statement credits, checks, gift cards and more. Some programs also allow you transfer rewards to travel partners.

It’s important to visit your card issuer’s online portal and learn the in’s and out’s of how to redeem your miles or points. Take the time to educate yourself on the rules and options, as well as how to get the best value from your rewards.

Take the Chase Sapphire Reserve®, for example, which lets you redeem Chase Ultimate Rewards points for travel, cash, gift cards, statement credits and products and services.

  • Earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening.

  • 3X points on travel immediately after earning your $300 travel credit. 3X points on dining at restaurants & 1 point per $1 spent on all other purchases.

  • One Year Complimentary Lyft Pink ($199 minimum value). Complimentary DashPass subscription from DoorDash after activating by 12/31/21.

  • Earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $750 toward travel when you redeem through Chase Ultimate Rewards®
  • $300 Annual Travel Credit as reimbursement for travel purchases charged to your card each account anniversary year
  • 3X points on travel immediately after earning your $300 travel credit. 3X points on dining at restaurants & 1 point per $1 spent on all other purchases. $0 foreign transaction fees.
  • Get 50% more value when you redeem your points for travel through Chase Ultimate Rewards. For example, 50,000 points are worth $750 toward travel
  • 1:1 point transfer to leading airline and hotel loyalty programs
  • Access to 1,000+ airport lounges worldwide after an easy, one-time enrollment in Priority Pass™ Select
  • Up to $100 application fee credit for Global Entry or TSA Pre✓®
  • One Year Complimentary Lyft Pink ($199 minimum value). Complimentary DashPass subscription from DoorDash after activating by 12/31/21.

See additional details for Chase Sapphire Reserve®

More Info

If you redeem your Chase Sapphire Reserve® points for airfare, hotels, car rentals or cruises through Chase Ultimate Rewards, you’ll get 50% more value on your rewards — increasing the value of the card’s sign-up bonus to $750.

You can also transfer your points (in increments of 1,000 points) to the card’s 10 airline partners and three hotel partners at a rate of 1:1. The transfer partners are as follows: Aer Lingus AerClub, British Airways Executive Club, Emirates Skywards, Flying Blue Air France KLM, Iberia Plus, JetBlue TrueBlue, Singapore Airlines KrisFlyer, Southwest Airlines Rapid Rewards, United MileagePlus, Virgin Atlantic Flying Club, IHG Rewards Club, Marriott Bonvoy and World of Hyatt.

The ability to transfer points at a rate of 1:1 is very generous. By contrast, the Marriott Bonvoy Boundless™ Credit Card lets you transfer points to its airline partners mostly at a rate of 3:1 — meaning, 3 Marriott Bonvoy points will be worth just 1 point when transferred to one of these partners. That said, cardholders can transfer points to more than 40 airline partners, including American Airlines, British Airways, JetBlue and United Airlines. Plus, you will receive an extra 5,000 miles for every 60,000 points you transfer to airline miles.

Marriott Bonvoy Boundless™ Credit Card holders can also redeem points at more than 7,000 participating Marriott Bonvoy hotels, as well as for travel, gift cards, merchandise and charity.

Whichever credit card you use, it’s important to familiarize yourself with the terms and conditions of the rewards program to ensure that you don’t let your rewards go to waste. For example, Chase Sapphire Reserve® points won’t expire as long as your account remains active and in good standing. However, Marriott Bonvoy Boundless™ Credit Card points will expire if you don’t use your card to make a purchase at least once every 24 months.

What’s the catch?

If you can earn points in all sorts of ways, and spend them on all kinds of goods and services, what can go wrong? First, the company that issues the points owns them, not the customer. That means that if you cancel a credit card (or the card issuer cancels your account) you will lose any points earned in a program operated by the bank (you will not lose any airline or hotel points).

Additionally, companies can — and do — change their programs any time they see fit. While some changes, such as a points devaluation, are negative to the customer, others, like adding a travel transfer partner, can be beneficial.

The bottom line

Anyone who earns points or miles from a credit card, airline or hotel needs to know the basics about how these programs work. But once you understand what rewards are worth and how to earn them, you can make the best decision when it comes using them.

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