Credit card rewards

What It Means

Credit card rewards are what a card pays back on your spending, usually as cash backCashbackMoney a card or program pays back as a percentage of what you spend, usually as a statement credit, a deposit or a check. See more, points or miles. Cash back is worth its face value, while points and milesPoints and milesRewards earned from credit cards, airlines and hotels that can be spent on travel, worth whatever the program lets you redeem them for, often around 1 cent each. See more are worth whatever the program lets you exchange them for, which changes with how you redeem them. Rewards are earned on purchases; interestInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more and fees earn nothing and eat into what you've earned, so a rewards card pays off mainly when you clear the full balance each month.

How People Say It

• "I put everything on the card for the points."
• "It's two percent back on everything."
• "We're saving our miles for the trip next summer."

The Breakdown

Worked example. Tomás spends $1,500 a month on a card that earns 1.5 points per dollar, and he redeems points at 1 cent each (example figures):

What the result means. Paid in full, the card gives back $270 a year. Carrying a $2,000 balance at an example 24% APR costs about $480 in interest over a year, so the rewards stop covering the cost. That's why Experian says someone who usually carries a balance will generally find the interest outweighs the rewards.

Points and miles. Their value depends on how you redeem them. Experian suggests aiming for at least 1 cent per point, and a point used at a lower value is worth less than it looks. Cash back is simpler: $100 back is worth $100.

Good to Know

Rewards are paid on eligible purchases only, and Experian lists common transactions that don't earn them, so check your card's rewards terms for what counts. Read the program's terms for any rules on expiration and redemption, too. Before paying an annual fee, work out whether the rewards you'd realistically earn cover it, and remember that spending more to earn rewards costs more than the rewards return.

Related Terms and Categories

• Annual fee

  A yearly charge some credit cards bill simply for keeping the account open, listed in the card's Schumer box and charged again each anniversary.

• Credit card grace period

  The time between a card statement and its due date when purchases collect no interest, as long as you pay the full statement balance.

• Statement balance

  What you owed on a credit card when the billing cycle closed, as printed on that month's statement.

• Store credit card

  A credit card offered by a retailer, either usable only at that store or co-branded with a card network, often with store discounts and a higher APR.

Debt and credit