Types of Credit Card Rewards

With so many options in different variants of cards and programs, people often get confused in choosing the right one, and some even end themselves in financial trouble after making the wrong decision. But, you don’t worry about the same, as you are at the right place. In this article, we will help you understand all the basics you need to know about types of credit card points in the simplest language so that you can make the right choice. So, let’s start :

Reward Credit Cards: Meaning

A reward credit card is a type of credit card offered by banks and financial institutions in which you either get cashback, points, or miles for eligible purchases made by using your reward credit card.

Types Of Reward Credit Cards

There are 3 types of reward credit cards:

• Points: In the points reward system the user gets a fixed amount of points per dollar spent and a redemption conversion in the ratio of 1:1.Please note that there could be different reward rates, conversion rates, and redemption options depending upon the card issuer. Also, you earn points instead of rupees which is essentially a different currency, which makes reward cards a bit more complicated to understand than cashback reward cards for their users. Some point reward credit cards may offer 2X points on travel purchases while others offer 5X points on the same travel purchases, therefore you must go through all terms and conditions and should only choose a point to reward credit cards that complement your lifestyle.

For Example, Ram redeems 30,000 points to book a 3000 rupees flight that his card issuer is offering him one cent per piece. But, if he uses 30,000 points to book a flight worth Rs 6000, then his point value increases by two percent.

• Miles: In the miles rewards system, the user gets to earn miles on every rupee he spends by using the card along with often getting offered boosted reward rates for travel-related purchases. It works similarly to points but these are mainly associated with travel cards which provide its users the benefit of redeeming rewards for flights, airport lounge access, seat upgrades, and other travel-related expenses. Some cards offering miles reward systems may also, an option to its users of transferring miles to the issuer’s travel partners, which mostly include airlines and hotels.

For example, Ram uses miles to book a flight from Delhi to Goa for himself, he can typically redeem them by simply logging into his account during the booking process, and similarly, he can redeem them while booking a hotel.  

• Cashback: It is one of the most attractive offers offered by reward credit cards. It works on the most simple principle the users get real cash on eligible purchases made by using the reward credit card. The cashback reward may range between 1 % to 5% of your total expenditure made on eligible purchases.

For Example, Ram made purchases worth Rs 1000 by using a 5% cash back card on eligible purchases, he will get 50 rupees as reward points. When he redeems his rewards, the cashback will directly be deposited into his bank account.

Each one of us buys a credit card to gain benefits but where it financially empowers many, it financially troubles some. To make sure you are not the one getting troubled, make sure you research interest rates, annual fees, and sign-up bonuses along with analyzing your budget and lifestyle well. It will not only ensure that you get the best of the card’s overall value but will also determine how much the rewards you earn will be worth.