Understanding Your Credit Card Rewards

A recent survey from JD Power and Associates showed that 41% of people don’t completely understand their credit card’s reward system. If you are one of them, keep reading.

If your credit card offers rewards and you aren’t using them, you could be missing out on cash back, frequent flyer miles, free nights at a hotel, and much more. Some people may think that the rewards offered by their credit card company are just a way to get them to spend money—nothing more than an advertising gimmick. But if you think that, think again. Sure, you have to spend money to get credit card rewards, but you are going to spend money anyway. If you have to spend money, you may as well get something for it. Credit card rewards are truly a way to make your money work for you.

Points, miles, percentages and bonuses

All credit cards have their own way of structuring their reward programs. Some use points, some give miles, and some award bonuses or give a percentage of cash back. Here are the basics of each type of reward:

• Points: Credit cards that give points usually award one point per dollar spent as a base reward. For certain categories, they may give double points—two points per dollar spent—or even triple points. These points can then be redeemed for cash back, gift cards, merchandise or frequent flyer miles.
• Miles: If your credit card gives miles, they could be a couple different kinds. One type of “miles” is really a credit that can be applied toward the purchase of airline tickets on any carrier. Another type is miles that are specific to one airline. These may be transferable to another airline that has a partnership agreement with the airline, called an alliance.
• Bonuses: A sign-on bonus, an anniversary bonus, a referral bonus—there are several different bonuses that credit card issuers give customers. A sign-on bonus is usually the most valuable, with offers like 30,000 frequent flyer miles for spending $1,000 in the first three months, or $100 in gift cards after you make your first purchase with the card. Anniversary bonuses are usually a percentage of the total rewards you earned that year. Referral bonuses can be things like a free companion fare on your next flight, or a gift card.
• Percentage of cash back: Cash back credit cards give you a straightforward reward—usually one penny for every dollar spent. That’s 1% cash back on all purchases. Many cards give extra in certain categories, up to 5% cash back, but this often has a cap that limits the amount of your rewards.

No matter what kind of rewards your credit card offers, you don’t want to leave them on the table. Go to your credit card issuer’s web site or call the customer service number and talk to a representative to make sure you get the most from your rewards program.