How Do Credit Card Points Work?

by Arjit Chalmela Finance Student

Credit Card

One of the most important pieces of plastic in your wallet is a credit card. When used right, a credit card can give you money as well as rewards, discounts and benefits.

How do they work?

Credit cards are extremely popular because they offer you a credit period. This means unlike a debit card or internet banking; you do not have to pay the expense immediately. You can pay the bill around 20 days after the end of the month and get a significant credit period. This credit period comes in handy to manage funds.

However, if you’re late paying the card bill, the credit card company will charge you interest on your bill amount till the time the dues are completely paid off. This fee can be quite substantial at 2 per cent per month which is why it is beneficial to pay off. In return for the credit period that the company gives you, you are charged an annual fee. Some cards waive off the annual fee if you spend a certain amount on the card.

There are many credit cards benefits but the biggest benefit are the rewards that you can get for simply using the card. The credit period itself can help you earn interest on your funds before you pay off the bills.

At the end of every month, you get a credit card statement with the itemized spends and dates. It also has information about accrued points.

What are these points about?

Credit cards reward the user in different ways:

Discounts on online purchases at merchant websites
Rewards or cashbacks
Credit card points

The points are one of the most important reasons why people get the card. In fact, accumulating credit card points can help in getting free airline tickets and other benefits depending on the card. Precisely why it is very important to understand what the points are and how they work.

They are the company’s reward system for each rupee spent on the card. This reward system is not uniform and depends from card issuer to card issuer. One card point will not always equal a rupee. You must understand how points accrue before opting for the card.

For example, if you earn 10 points on spending INR 200, then each point costs you INR 20. Some activities or spends may earn you points at an accelerated pace i.e. if you spend on flights on a travel card, you will earn points at a faster rate.

How do points work?

The points can be accumulated and redeemed for different uses. The card issuer clearly specifies where the points can be redeemed. Some card companies allow you to convert points into airline miles which can be redeemed for free hotel stays or free airline tickets.

You can also redeem the points for discounts or offers at merchants. Some card companies give vouchers for hotel stays or experiences in lieu of point redemption. Once you accumulate several points, they can be redeemed wherever you want to use them for.

One of the important things to consider while opting for credit cards is the reward system i.e. how quickly you earn points and the redemption opportunities. This can help you pick the card that gives you maximum benefits for the spends you make.