Credit Card Reward Points Guide – How it All Works

Credit card issuers want you to use their cards as often as you possibly can. So, what’s in it for them? The more you swipe or tap, the more fees they collect from merchants… It’s that simple! But how do they encourage you to use your card as frequently as possible? Points!

Credit card issuers want you to use their cards as often as you possibly can. So, what’s in it for them? The more you swipe or tap, the more fees they collect from merchants… It’s that simple! But how do they encourage you to use your card as frequently as possible? Points!

You are rewarded, in the form of points, based on the value of the transaction you just swiped or tapped for. The larger the transaction value, the more rewards points you earn.

Credit Card Points

Finer points about points

So, what exactly are “points”, and what use are they to you?

Before we start making a point about points, lets be clear: Points are just one type of “reward” that card issuers offer. There are other cards that don’t offer points, per se, but nonetheless do reward you. They might do so by:

  • Offering you a discount on the value of (selected items of) your purchase;
  • Providing you a certain percentage of Cash Back
  • Give you credits on your next credit card bill

Point rewards, on the other hand, don’t provide you instant cash, instead, you can swap the points you earn for “stuff”, including:

  • Airline tickets
  • Travel expenses, like hotel bookings and car rentals
  • Buying goods and services at other retailers, like gas or groceries
  • Purchasing items from the card-issuers website, like clothing or electronic items

The point, about points, is that they are primarily offered as rewards to card owners for using their cards. On many occasions, you’ll receive points not for using the card, but just for signing up for a new card, or for transferring over a balance from an existing card.

Other important characteristics about points are, that they may be earned when you use them at a specific retailer (like at Walmart or Shoppers Drug mart), or they may be multi-retailer points cards that earn you points when used at a multitude of locations.


Types of points cards

Now that you understand how points cards work, it’s time to learn more about the different types of points cards available to you:

    • General Points Rewards Cards
      These cards offer you points on an assortment of purchases, which you can then redeem for various types of products and services, including Pet Supplies, Jewellery, electronic items, groceries…and more.
    • Aeroplan Miles CardsYour Aeroplan Miles cards, such as the TD® AEROPLAN® Credit Card, or the Air Canada Vacations Card, reward you with Aeroplan Miles on every swipe, tap or use. When you have accumulated a set number of miles, you can redeem them for flights, vacation packages, music and entertainment events or merchandise.Aeroplan also allows you to transfer miles from one Aeroplan account to another, and even allows you to buy miles if you are short of miles to meet a specific objective.
    • Air Miles CardsAir Miles Cards reward you with “miles” each time you use your Air Miles card. Those “miles” can then be applied against flights at participating airlines. A certain number of “miles” earned will entitle you to specific miles of flights – like a trip to Florida or Mexico. You can also use your Air Miles points against other goods and services, such as Entertainment, Electronics, Gift cards etc.These cards also let you earn what’s called “Air Miles Cash”, which allows you to accumulate Cash Miles every time you shop at a participating store. You can the redeem those “Cash Miles” for goods/services at Air Miles partners. The BMO® AIR MILES® Mastercard® is an example of such a card.Although Air Miles doesn’t allow you to transfer between Cash Miles and “regular” travel miles, you are allowed to change your reward preferences at anytime, converting one type of accumulated rewards (travel miles) into another (cash miles).
    • Travel/Hotel Points CardsAs the name suggests, these types of cards reward you only with points that can be redeemed for travel or vacation-related spending. Some of these cards are co-branded with co-sponsors, like airlines or hotel owners, and the cards may ONLY be used to book/buy goods and services from those specific sponsors.If you aren’t a frequent traveller, then this type of card might not be what you want.
    • Retailer Points CardsYou can also get points by using retailer co-branded credit cards, for instance those issued by Walmart or Amazon. Each time you use your card with the sponsoring retailer, you are usually eligible to earn double or ripple the number of points as you would if you used it at a non-sponsor location.The points earned on such cards are generally non-transferrable to another retailer points card. Additionally, they may be redeemed in any number of ways, including cash-back, credits against merchandise, or credits against your credit card invoice.
    • Gas Points CardsThese types of cards are available as “generic”, which can be used at any gas station, or “specific”, which can only be used at a sponsoring gas outlet. The rewarding system varies, depending on the sponsor.For instance, some Gas Points cards might provide you cash-back for generic purchases; while others might reward you for gas or auto-repair services. You could also redeem your points for “free” services, such as oil changes or car washes.So many different points cards to choose from! Which one should you choose?

What’s right for you?

Each individual is different, and therefore what you are looking for in credit card points might be different. However, you can determine the ideal points card by taking the following into consideration:

  • Frequency of use
  • Cost (if any) associated with the card (annual fee, admin fee) and the value of rewards you expect you’ll receive
  • If you normally carry a balance on your card, how will the interest you pay impact the total value of your points – will you end up paying more than the value of the points you’ll earn?
  • Are the rewards really something you’ll use – Gas, Miles, Travel-related expenses?


Finally, take a close look at the Points-earned to Dollars-spent ratio. If you earn just 0.01 point for every $5 spent, this card might not be worth it! Another way to evaluate, if this is the right card for you, is to analyze the Earn versus Burn rate. The Earn rate is calculated by comparing the points you earn for each dollar spent. The Burn rate is the value of the points you redeem for “stuff”. A reasonable rate is 1 cent for each point (or mile).

If you are planning to transfer a credit balance, from another credit card to a points credit card, you may also want to use the online calculator from JustCompare to check what it might cost you to pay off your balance, versus the cost of moving (and owning) the new points credit card.

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Nilay Lad

Nilay Lad

Co-founder, Advisor & Guest Blogger

Nilay holds 14+ years of experience in developing and delivering strategies to grow and digitise banks through proposition development and improving customer experience.

This information is just our view and should be not be considered advice of any sorts.
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