Imagine turning everyday spending into travel, cash back or other rewards. That’s the basic idea behind credit card rewards.
So how do credit card rewards work? Credit card companies offer rewards like cash back, airline miles, hotel stays, dining and more. You earn them by using your card for purchases you’d already be making.
Find the best credit card rewards for beginners in this guide, and learn how to swipe smart, maximize those perks and avoid the common mistakes that can wipe out their value.
Key Takeaways
- Credit card rewards for beginners let you earn cash back, points or miles on everyday purchases like groceries, gas, dining and travel.
- The best rewards credit cards match your existing spending habits.
- Beginners should watch for common pitfalls like overspending, high utilization, annual fees and missed bonus requirements.
- Credit card point values vary by redemption method, so check what your points are worth before you redeem them.
How do credit card rewards work?
To get the most out of your everyday spending, start by exploring your options for credit card rewards. Pick the card (or cards) that’ll help you rack up rewards toward the things you want to spend money on.
Here are the most common types of credit card rewards:
- Cash back: With a cash back card, you’ll earn cash as a percentage of what you spend. Flat-rate cards pay the same percentage on everything you buy, which makes them the simplest place to start. You can put what you earn toward paying off your card balance or claim cash as a check or direct deposit.
- Points: Points usually have a cash value, but the value varies depending on how you redeem them. Options can include cash back, gift cards, merchandise, travel or other services from the credit card company’s partners.
- Miles: Airline credit cards usually offer rewards as miles, which work similarly to points. Redemption options vary by program and can include travel, cash back or gift cards.
- Tiered rewards: Some cards offer a different percentage of rewards depending on what you purchase. A card might offer 3% on purchases for travel and dining, but 1% on everything else. You can usually find cards that help you maximize earnings in any category, including travel, dining, groceries, gas, etc.
- Rotating categories: Cards with tiered rewards might change those tiers by offering higher rates on a different category from quarter to quarter.
- Sign-up bonuses: Many credit cards come with an incentive for new customers. If you spend a certain amount within the first few months of opening the card, you can earn a cash bonus or extra points or miles.
- Perks and benefits: Some credit cards offer additional perks such as access to airport lounges, travel insurance, extended purchase warranties with partner brands and more.
Your rewards typically post to your account once the billing cycle closes. From there, you can redeem online, in your issuer’s app or by calling the number on the back of your card. Most programs let you redeem as statement credit, direct deposit, gift cards, travel booked through the issuer’s portal or transfers to partner programs.
What Your Points Are Actually Worth
As a rough baseline, most credit card points are worth about 1 cent each. So 10,000 points usually translates to around $100 in value. That’s the number to anchor to before you redeem anything.
Want to know what your points are really worth on a specific redemption? Divide the cash price of what you’re booking by the number of points it costs. Say a flight runs $600 or 40,000 points. Divide 600 by 40,000 and you get 0.015, or 1.5 cents per point. Anything above 1 cent means you’re beating the baseline.
Not every redemption gives you that same value, though. Some cash out below a penny, and others stretch well above it. Here’s the ladder to keep in mind:
- Below 1 cent: Merchandise and shopping portal redemptions usually return the least, often well under the baseline.
- Around 1 cent: Cash back, statement credits and most gift cards tend to land right at the baseline.
- Above 1 cent: Airline and hotel transfer partners can push your points well past a penny each.
The takeaway? Know your baseline, do the quick math and aim for redemptions that clear 1 cent whenever you can.
Choosing the Right Credit Card for You
Getting the most out of a rewards credit card starts with choosing one that fits how you already spend and offers rewards you’ll actually use.
To choose the best cards for you:
1. Notice Your Spending Habits
Look at where you already spend money. Does most of your day-to-day spending go toward gas? Groceries? Eating out? Travel? Electronics? Pick a card (or multiple cards) that offers the most rewards for the kinds of spending you do most.
2. Consider Alternatives
There are plenty of debit cards on the market that offer rewards, too. For example, the Walmart MoneyCard gets you 3% cash back on purchases from Walmart.com and through the Walmart app, up to $75 in rewards a year.
3. Read the Fine Print
Consider more than just rewards when you choose a card. Many rewards cards come with an annual fee, so you’ll need to earn more in rewards than you pay in fees to make it worth it. Credit cards also come with interest rates, credit limits and credit score requirements you can compare to determine which is right for you.
To compare rewards credit cards side-by-side, check out these credit card comparison sites:
- NerdWallet
- CardMatch by Bankrate
- LendingTree
Rewards Credit Card Pitfalls to Avoid
Credit card rewards can help you save money or get more value from purchases you’d make anyway. But they can also tempt you to spend more than you planned.
Avoid these common pitfalls to make sure you get more out of the card than you give away to credit card companies.
Overspending to Rack up Points
Credit card rewards don’t necessarily save you money if you end up spending more than you normally would just to earn points.
It’s tempting to spend extra money in a category or at a particular store when a card is offering a higher rewards rate. But those rewards aren’t really saving you money if you’re buying things you wouldn’t have purchased otherwise.
Plan your credit card use based on your normal spending habits, not the other way around. Use rewards cards for purchases you already planned to make, and earn rewards on the spending you’d be doing anyway.
Accumulating Debt, Interest and Fees
You don’t have to rack up debt to rack up rewards on your credit cards. You’ll avoid paying interest and late fees if you pay off your balance in full each month, and you’ll still earn rewards.
But if you don’t pay in full, that math flips fast. According to the Federal Reserve, the average APR on cards carrying a balance sits at 22.15%. At that rate, one month of interest can wipe out a full year of rewards on the same balance.
A high credit card balance is also harder on your credit score. Running a balance (“utilization”) of more than 30% of your total credit limit can hurt your score. You can avoid that by paying off your balance as you make purchases, even if you have to do that more than once a month when you get a credit card bill.
Missing payments can hurt your credit score even more. If you carry debt and don’t make at least the minimum monthly payment, your credit score can take a serious hit.
Rewards Red Tape
Rewards categories and percentages can change over time. Stay up-to-date with changes so you know you’re still getting the best bang for your buck.
Keep an eye out, in particular, for extra requirements to claim rotating rewards. You might have to “activate” rewards categories as they change every few months, or you’ll miss out on the higher rewards.
Issuers can also change what a point is worth after you’ve already earned it. That makes sitting on a big points balance riskier than it looks. Redeem within a reasonable window rather than hoarding a huge stash for later.
Watch for earning caps, too. Many cards limit how much you can earn in a bonus category or across the year. Check that cap before you build your spending around a high rate. Otherwise you might hit the ceiling sooner than you’d think.
Check your credit card account regularly, and read emails from your credit card issuer to make sure you’re on top of any changes or extra requirements in your card’s terms and rewards programs.
Be a Credit Card Rewards High Roller
Once you’re familiar with your spending habits and the parameters of your credit card rewards, crank up the volume to get even more out of your rewards.
Card Churning
Get your hands on every credit card bonus out there! “Churning” is the practice of opening new credit cards, claiming introductory bonuses and discontinuing your use of the card.
Doing this haphazardly could risk accumulating debt or hurting your credit score, so do your homework before trying it out.
- Spread out applications. Applying for too much new credit in a short amount of time dings your credit score.
- Keep an eye out for annual fees. To avoid losing your benefits to an annual fee, close the card before you have to pay it. But…
- Don’t close every card right away! Length of credit history impacts your credit score, so a bunch of cards only open for a few months could be detrimental. If there’s no annual fee, keep a card open even after you stop spending on it.
- Watch your spending. Introductory offers often come with high spending requirements for the first few months of your account. If this is way above your normal spending, the card probably isn’t a fit for you!
Also note that credit card issuers have implemented various measures to prevent churning, so this strategy is becoming more challenging.
Transferring Points
Rewards points are often more valuable when you transfer and redeem them with partner brands than if you just take them as cash or statement credit.
Transfer options are usually concentrated among travel brands, such as airlines and hotels. This strategy is particularly beneficial for frequent travelers. You can align your point usage with your travel plans to optimize the value of your rewards.
Combining Cards
You don’t have to limit yourself to a single rewards credit card!
Using multiple credit cards strategically can help you get the most out of every purchase. Different cards offer different rewards for different kinds of spending, like groceries, dining or travel. By using the card that offers the highest reward for each purchase, you can maximize what you earn.
Struggling to qualify for rewards credit cards?
If you’re having trouble qualifying for rewards credit cards, you may need to work on your credit first. Here are a few tips to help you build and maintain good credit:
- Make on-time payments. Avoid missing payments for credit cards, loans, rent and even utility bills.
- Keep your balances low. Credit scoring models look at how close you are to maxing out, and the general guidance is to stay under 30% of your total limit.
- Keep old accounts open when possible. Your credit age plays a role in your credit score. Even if you don’t regularly use the card you opened back in college, closing it could hurt your score.
- Mix up your credit types. Lenders like to see a mix of revolving credit and loans.
- Avoid opening too many new accounts at once. Lenders and credit card companies will run “hard credit checks,” which can temporarily decrease your score.
- Use tools like secured cards or credit-builder loans. These can help boost your score by allowing you to create a positive payment history over time.
- Consider a credit-building shopping option like Perpay. Perpay offers a personalized spending limit for its online marketplace, and on-time payments can help you build credit history.
Explore more tools to help you build credit.
How to Make Credit Card Rewards Work for You
Now that you know how credit card rewards work, the next step is picking a card that matches how you already spend.
Our top tips? Pay your balance in full every month. Skip cards that would tempt you to overspend just to earn rewards. Check what your points are actually worth before you redeem them.
Want to stack even more cash on top of your card rewards? Sign up for KashKick for free and start earning on games, surveys and deals.
FAQs: How Do Credit Card Rewards Work?
Are credit card rewards worth it for beginners?
Yes, credit card rewards can be worth it for beginners if you pay your balance in full every month and avoid unnecessary spending. Rewards cards are best used for everyday purchases you already make—not for buying extra items just to earn points.
What’s the best type of credit card rewards for beginners?
The best type of credit card rewards for beginners is usually cash back, because it’s the easiest to understand and use. Points and miles can offer higher value, especially for travel, but they often come with more restrictions and learning curves. Beginners may want to start with a simple flat-rate or tiered cash back card before branching out.
Do credit card rewards affect your credit score?
Credit card rewards themselves don’t impact your credit score, but how you use the card does. Making on-time payments, keeping your credit utilization below 30% and avoiding carrying balances can help improve or maintain your score. Missed payments, high balances or frequent applications can hurt it.
Is it bad to open multiple credit cards for rewards?
It isn’t necessarily bad to open multiple credit cards for rewards, but it’s not ideal for everyone. Applying for too many cards at once can lower your credit score temporarily. Beginners should start slow, understand each card’s benefits and only open new cards when they can meet spending requirements responsibly.
What if I don’t qualify for rewards credit cards yet?
If you don’t qualify for rewards credit cards, focus on building your credit first. Tools like secured credit cards and credit-builder loans that report to credit bureaus can help you establish a positive payment history and improve your chances over time.
How much are 10,000 credit card points worth?
10,000 credit card points are usually worth around $100, because most issuers value points at about 1 cent each. That means 50,000 points land near $500 and 1,000 points is closer to $10. The exact value depends on your card and how you redeem, though. Gift cards and merchandise often come in under 1 cent per point, while transferring points to an airline or hotel partner can push you above it.
What is the No. 1 rule of credit card rewards?
The No. 1 rule of credit card rewards is simple: Never spend more than you would have anyway just to earn points. Rewards only count as free money if you’d have made the purchase regardless. The close second rule is paying your balance in full every month, since interest charges wipe out rewards fast.
