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Credit Card Points

Learn the pros and pitfalls of credit card points.

Many credit card companies offer credit card points, but consumers should be vigilant in understanding their terms. [© Jupiter Images, 2010]
© Jupiter Images, 2010
Many credit card companies offer credit card points, but consumers should be vigilant in understanding their terms.

Credit card points are incentives that credit card companies offer users for each dollar they spend on a card. Accumulated points can be cashed in for various offers, such as upgraded flights, theatre tickets or free meals. 

Points Programs

Credit card points are rewarded for every dollar a consumer spends. For example, the Citi Diamond Preferred Rewards Card gives consumers five points for every dollar spent at grocery, gas, and drug stores for the first 12 months and one point per dollar after that. Their rewards start at 1000 points and include access to concerts and other entertainment opportunities. Consumers also have the opportunity to cash in their points for a gift card to popular stores such as Home Depot and Target.

The Citi Forward card differs in that it rewards consumers for smart spending. It gives consumers 100 points every time they pay on time and stay under their credit limit, 6,000 points when $50 or more is spent using the card within three months, 5000 points for signing up for paperless statements, five points for every dollar spent on restaurants, books, movies, and music, and one point per dollar on all other purchases.

Points are generally tracked in an online account on the credit card's Web site. When the user logs on to their account, they can view how many points they have. There is usually a "redeem your awards" link where users can spend their points on a variety of items. They can also see how many points they need to get before they can afford a desired award item.

Consumers Beware

Consumers must be aware of the interest rate a card charges, because 3% cash back on gas may not be worth it if they are charged an astronomical interest rate. Credit card companies often lure people with special points and rewards and expect them to rack up high balances, for which they will be charged steep interest rates. The Capital One No Hassle Points Reward Card, for example, offers great rewards like one point per dollar spent on most purchases and two points per dollar at gas stations and drug and grocery stores. However, this card also charges an APR of 13.9% variable.

It is best for a consumer to choose a card that offers points that best suits him or her. For example, a large family would do well to choose a card that offers cash back on grocery purchases. The Capital One Cash Rewards Credit Card offers 2% cash back on grocery store purchases, as well as gas and drug store purchases. So long as they pay off their balance, this sample family will be getting free money for purchases they would have made anyway. If this same family were not able to travel much, a card that rewards them with airline miles wouldn't be practical for their lifestyle. However, for a person who travels regularly, a travel rewards card is worth looking into. Bank of America's travel cards, including their Alaska Airlines Visa Signature Card and Hawaiian Airlines Visa Platinum, offer points and rewards toward flights on particular airlines.

Not all purchases are eligible for points, nor for the same amount of points. For example, Citi Diamond Preferred Rewards Card offers five points per dollar spent in most stores, but only one point per dollar on discount, warehouse and convenience stores.

Reward point credit cards are not for people with a large balance on their card, as they often have higher interest rates than non-reward credit cards. According to The Consumerist, reward cards are intended to entice consumers to spend more than they can actually afford.

Value of a Point 

Some of the rewards Citi offers when a consumer cashes in points include airline tickets, hotels, travel packages, retail merchandise like shorting equipment or DVDs, credits toward a billing statement, and gift certificates to stores and restaurants. A $100 gift card costs about 10,000 points. A $2700 trip costs about 90,000 points.

Chase Freedom's point program gives consumers 1% cash back on all purchases and 3% cash back on rotating purchases. These points accrue in an online account and can be used to purchase things from their website. A $50 card costs $50 worth of points and a $100 card costs $100 worth of points.

Credit card points take a long time to accrue to actually be worth anything of value. They can be used wisely, resulting in useful rewards for money spent. However, a consumer must be wary not to fall into the spending trap. Spending money just to save up and get rewards is not a wise idea. On a card that awards one point per dollar spent, it's really not worth spending $10,000 just to get a $100 Target gift card.

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