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Credit Card Rewards 101: Getting the Most Out of Your Credit Card

By Alyssa Schwartz · March 24, 2021 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Credit Card Rewards 101: Getting the Most Out of Your Credit Card

Groceries, streaming services, transportation—everyday spending can add up, as most people’s monthly credit card statements can attest. And while paying bills is no fun, using a rewards credit card can help make some of those expenditures pay off.

Rewards credit cards pay cardholders back based on a small percentage of what they spend. The credits earned for making purchases come in the form of cash back, points, or airline miles.

Differences in the types of rewards cardholders can earn, how such rewards may be redeemed, and so on means it may take a little research to find the best rewards card for your own circumstances.

How Much Cash Back Can You Earn on a Credit Card?

The amount of money people can earn using a rewards credit card depends on a few things.

Rewards are based on a percentage of the total amount of charges, so how much an individual spends during a given earning period is obviously a key factor. But the rate at which a cardholder is rewarded also plays a big role in the total value they’ll get back.

For cash-back rewards cards, earnings are based on a percentage of how much money is charged to the card. The rate of earnings can typically range from 1% to 6%.

Some rewards credit cards offer tiered earnings, meaning the percentage back will vary based on the total amount spent during the year. For such cards, you would earn cash or rewards at one rate until you hit the tier threshold, and then start accruing based on the rate for your next spending tier.

Depending on the type of credit card, tiered rates may increase as cardholders spend more, or can decrease after a cardholder hits a cap.

Calculating what the rewards rate actually amounts to in the form of money back can be simple for cash rewards: Just apply the cash-back percentage to total spending on the card.

But for credit cards that reward customers with points or miles, figuring out the value a cardholder will earn can be more complicated.

How to Calculate the Value of Rewards Points and Miles

While the idea of earning thousands of points in a given year may look attractive, it’s harder to tell at a glance exactly how much value you may earn using this type of rewards credit card.

Rewards credit cards typically accrue a set number of points or miles for each dollar spent—for example, one point for every dollar charged. It’s fairly easy to use this earnings formula to check how many points one might rack up in a year: Just multiply the total estimated spending for the year by the earnings rate. But it’s trickier to tell what those rewards might actually be worth.

For some cards, earned rewards points may have a set redemption value—for example, every 10,000 points might be worth $100 in flight or merchandise redemptions.

Such formulas make it fairly straightforward to calculate what your annual points haul would be worth. Say a card earns one point for every dollar spent. It would then take $10,000 in spending to earn $100 in rewards—a rate of return of 1%.

Other rewards credit cards allow cardholders to make purchases directly using points, without having to convert their rewards into cash. To calculate the value of these, there’s some extra legwork and number crunching involved.

Understanding the Value of Travel Points

Let’s say a rewards credit card redemption website charges 25,000 points for a domestic airplane ticket or 40,000 points for a coffee maker. To determine the value of earning, you first might look up airfares or prices of coffee makers. With that price in hand, an individual could then determine the value of their points:

•  If a domestic flight is 25,000 points, at one point earned per dollar, it would take $25,000 in spending to buy a ticket. If that ticket is worth $395, then each point is worth 1.58 cents (395 divided by 25,000), or a rate of return of 1.58%. However, if you used those rewards to book a $200 ticket, the rate of return would only be 0.8%.
•  If a coffee maker costs $138 retail or 40,000 in points, the rate of return would be 0.3% (138 divided by 40,000).

To complicate matters further, redemption rates may depend on the type of reward you choose, with different points requirements for things like flights, car rentals, gift certificates, or merchandise.

As these examples show, there can be a great deal of variability in what cardholders get back from rewards credit cards that pay out in points or miles. That’s not to say that such rewards are less valuable than cash back, but cardholders may have to be more strategic—considering the type of reward they select and the actual cost of their selections—to get the best bang for their buck.

How to Optimize Credit Card Rewards

It’s clear that the returns you can earn when using a rewards credit card can vary tremendously. But in addition to choosing a rewards card with the best earnings rate, there are other ways to take maximum advantage of credit card rewards.

Find the Best Card Based on Individual Spending Habits

While some rewards cards accrue points on a flat-rate basis—meaning points or miles are awarded at the same rate regardless of what an individual charges to their credit card—others offer higher levels of earning for different spending categories.

Some cards may offer more points per dollar spent on groceries or gas. Other rewards credit cards may provide more miles back when an individual spends on flights or hotels. For people who tend to concentrate spending on specific categories, some cards may offer added value back.

Max Out Available Promotions

Some rewards credit cards offer higher introductory earning rates—meaning you will earn more points than usual for a set amount of time or up to a specific spending threshold—or other promotions, such as greater earnings during a specified time period.

In such cases, you may want to time big-ticket items and other purchases to take advantage of those greater returns. (One important caveat: While offers to earn more rewards certainly seem attractive, it’s wise to ensure that spending is within your budget, as carrying a credit card balance may incur interest and/or penalties that can cancel out the value of any increased earnings.)

Recommended: How to Avoid Paying Interest on Credit Cards

Be Strategic About Redemptions

Given the variability in the value of rewards points, it’s a good idea to crunch the numbers before redeeming—especially because fluctuating prices and redemption promotions can help to stretch earned rewards further.

For example, although a $200 short-haul flight may not optimize the value of points, booking that same route at the last minute may be considerably more expensive. In such a case, points may yield considerably more value.

Similarly, taking advantage of redemption promotions or redeeming for the highest-value choices can yield greater returns.

The Takeaway

Getting rewards—whether in the form of cash back, points, or travel miles—when you spend money is an attractive proposition. Finding one or more rewards credit cards that fit your particular needs may take a little research.

The SoFi rewards credit card offers 2% cash back on all eligible purchases when you redeem points to save, invest, or pay down an eligible SoFi loan. Earn 1% cash back as a statement credit to your SoFi credit card.1

Look into the perks of a SoFi credit card today.


1See Rewards Details at SoFi.com/card/rewards
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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