Lots of credit cards offer reward point, but what exactly is reward point and how does it work?

Basically, credit card reward points are one of the variations of credit card rewards. Just like cash-back, reward points could be exchanged into some benefits. Some points could pay direct cash back, some offer travel miles, and some offer both, depending on credit card issuers.

Points are normally earned in two primary methods: sign-up bonus or purchase rewards.

For earning sign-up bonuses, you will receive a large number of points after making certain dollar amount of purchases within the introductory period, which is just like the welcome package.

Purchase rewards refer to earning points by purchasing, which is decided by the amount of purchasing. For example, some banks would regulate that you could earn 2 points for every 1 dollar that is spent on travel or entertainment. Some banks also give you bonus points for any purchases.

The redemption process of points will also be varied by credit card issuers. For example, reward points on travel credit card would be redeemed into airfare, hotel accommodations, car rentals, ground transportation, as well as other travel related activities. But reward points on card other than travel credit card could usually be redeemed for statement credits, cash, gift cards, ad non-travel related purchases, in addition to travel purchases.

We might wonder that how much are these points worth. Normally, a single point is worth $0.01 per dollar. Therefore, if you have around 50,000 points when you receive the welcome package, the cash conversion value of the points is typically around 500 dollars. Although some credit cards do not offer points to cash service, they might offer you some services that are worth around 500 dollars.

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