How to redeem credit card rewards

If you use rewards credit cards regularly, it’s only a matter of time before you’re ready to start redeeming your points, miles or cash back. But it can sometimes seem as challenging to redeem your rewards for their maximum value as it was to earn them in the first place.

Since different rewards programs call for different strategies, here’s a breakdown of how to redeem each type of credit card reward and the best redemption option for each one.

Types of credit card rewards programs

Before you begin to accrue any kind of rewards, you should first know what kinds of rewards programs are available out there. Since the rewards-earning structure can vary between cards, it’s good to be familiar with each one.

The four main kinds of rewards are cash back, flexible points, hotel points and airline miles, which are earned by cash back programs, card issuer programs and loyalty programs, respectively. The different types of rewards credit cards are usually organized by the type of rewards they earn.

Whether you should earn cash back, points or miles is up to you. The one that appeals to you depends largely on the redemption option that you value most.

Cash back is often the easiest type of reward to redeem, but each card issuer can offer different rewards redemption options. Cash back is relatively straightforward and great for people who like to reinvest their rewards into their own bills or accounts.

There are credit card points, also known as flexible points, that you can redeem in a variety of ways and sometimes transfer to airline miles or hotel points, depending on the program.

Points and miles are the terms most commonly used in loyalty programs, and each loyalty program will have its own rules for redeeming rewards. These kinds of programs are mostly targeted toward brand loyalists who’d likely redeem their rewards for free hotel stays or award flights.

How to redeem cash back

How you redeem your cash back rewards depends on the rules of the card issuer’s program.

For example, say you have a Capital One cash back rewards card. You can request your cash back online or using Capital One’s mobile app as a check or apply the amount to your account as a statement credit. In fact, you can configure your account to automatically redeem your rewards every time you earn a preset amount, starting at $25. You can also redeem your Capital One cash back for other options, including gift cards and Amazon.com purchases. However, it’s important to know that your rewards can be worth less (or more) when you redeem them for those options than what you would have received as a check or statement credit.

Capital One’s options for redeeming cash back rewards closely resemble those of other card issuers, including U.S. Bank, Bank of America, American Express and more.

A notable exception is co-branded cards like the Costco Anywhere Visa® Card by Citi. With this card, your cash back rewards are only available in February of each year in the form of a certificate. You can use your certificate to make a purchase at a Costco store or visit its customer service desk to redeem for cash.

For the most part, redeeming cash back rewards is direct — $1 of cash back is $1 as a statement credit or check.

Some cards allow you to set up automatic redemptions, usually when you meet the card’s minimum threshold for redemption, such as a set amount of cash back or a certain number of days. You may need to have a bank account with your card issuer to use the direct deposit option.

Nowadays, some cash back cards are closely connected with their issuer’s travel rewards program, so you earn flexible points on your cash back card. You can always redeem for cash back at a rate of 100 points for $1. This expands the list of redemption possibilities — from statement credit and check to travel and gift cards. Of course, you must contend with the fact that some redemption methods decrease the value of your rewards.

How to redeem credit card rewards points

There are many credit cards that have their own proprietary loyalty programs that issue rewards points, known for their all-around flexibility.

The most popular credit card rewards programs are Chase Ultimate Rewards and American Express Membership Rewards. However, in recent years Citi ThankYou Rewards and Capital One miles have gained traction in competing in the travel rewards space.

When you’re ready to redeem your rewards with these programs, you should head to your online portal or the issuer’s app. You’ll have a wide range of options, including cash back, gift cards, merchandise (including Apple products), travel reservations, charitable donations and credits to stores like Amazon.com.

By far, the most valuable and most popular way to redeem flexible points is for travel — chiefly airfare, at 1 cent per point. Other travel: hotel bookings, car rentals, vacation packages, cruises and such, may be worth it as well, but they take a bit more searching to get a good deal. Anything other than travel tends to devalue your rewards point.

A major feature of these programs is the option to transfer your rewards to airline or hotel partners. When you’re able to find the ideal travel partner to transfer your rewards to and redeem those points or miles for free hotel rooms or expensive flights, you can significantly increase the value of your rewards.

Many cardholders consider transferring points to hotels or airlines as the best redemption option. You should aim for a redemption value of the standard 1 cent per point. However, depending on the travel partner, you could get your points up to as much as 2 cents apiece. This is why Bankrate values some credit card points at 2 cents or more.

How to redeem hotel points and airline miles

Hotel rewards programs and airline frequent flyer programs offer points and miles that can be confusing to redeem. With airline frequent flyer programs, it can be extremely challenging to redeem your rewards for award flights at the lowest mileage levels. Redeeming for hotel rooms can be equally challenging, but hotels often give out more freebies than airlines.

How to redeem airline miles

When you’re ready to redeem, visit your airline’s website or app and fill in your flight dates, home airport, destination airport and how many passengers are in your party. Click the box that indicates you’d like to redeem or shop with miles so that you can see the award pricing.

It’s more difficult to know if you’re getting a good deal when redeeming airline miles because the major carriers — American Airlines, Delta Air Lines and United Airlines — use dynamic pricing systems that increasingly correspond with the cash price of new reservations. Even budget airlines like JetBlue and Southwest have come to adopt dynamic pricing in recent years as well.

For example, it was once easy to redeem 25,000 miles for a domestic, round-trip ticket in economy, regardless of how much the ticket was selling for. But today, you could be charged more than twice as many miles for an expensive ticket or less than half that number of miles for a highly discounted ticket. Or, you might find a few tickets available at a low mileage price, but not as many as you need.

To make matters more complicated, the major U.S. carriers allow you to redeem your miles on flights operated by foreign carriers, which can mean tremendous value when traveling internationally. Most airline programs also offer options to redeem your points or miles for other rewards, such as merchandise, gift cards, hotel reservations and rental cars. However, these non-travel options rarely offer as much value as award flights.

Still, with all these variables, airline miles are best redeemed for airfare. However, flexibility on your part is key. Try to be fluid on your travel dates and flight times and, if possible, take advantage of limited-time deals. Hopefully, you’ll chance upon an award flight for a decent number of miles — though it’s unlikely it’ll be a 1:1 ratio. Sometimes, if you choose to pay with miles and cash, you could get a decent deal as well.

How to redeem hotel points

When it comes to redeeming hotel points, visit the hotel chain’s website and filter by the specific hotel brand, travel dates, destination, number of people in your party and so on. Don’t forget to click the button that you’ll be shopping with points or rewards so that you can view the hotel prices in rewards.

The best strategy is to carefully compare rates throughout a date range and be as flexible as possible on your arrival and departure dates. Like airlines, hotels are using dynamic pricing, so prices are based on peak season, how many rooms are available and such.

You’ll often receive the most value when using your points during the peak season, when rooms are the most expensive. However, you may need to book these award stays far in advance in order to find available rooms.

Other tips to keep in mind: Take advantage of free night certificates (if they’re given annually by your hotel credit card) and fourth or fifth night free benefits. If you don’t have enough points to cover the entirety of your planned stay, check for points-and-cash options. You may be able to pay for the room with a combination of points and cash, and even give you good value on your hotel points.

3 common mistakes to avoid with rewards cards

While rewards credit cards present great opportunities to earn points, miles and cash back, there are a few mistakes you should take care to avoid. One or more of these blunders can quickly reduce or even erase your gains.

1. Missed or late payments

You can incur higher interest charges and fees if you make a late payment, as well as endanger your credit score. So, your first priority should be to always make your payments on time, preferably in full, to avoid paying more in interest and potentially canceling out your rewards. Also, some rewards programs take away any rewards you would have earned on a statement’s purchases if you miss the payment.

2. Missing the sign-up bonus deadline

Another common mistake is missing out on your new account bonus by failing to meet the card’s minimum spending requirement in time. Remember, these time limits are based on the day your card was approved, not when it was shipped, received, activated or used for the first time. There’s nothing more disappointing than checking that third statement on your new credit card and realizing you were $80 short of scoring the 80,000 bonus points.

3. Trading travel points for cash or merchandise

Finally, one of the biggest mistakes rewards cardholders tend to make is redeeming travel points for cash or merchandise. These cash back or merchandise rewards sometimes offer as little as 0.5 cents in value per point or mile redeemed, as opposed to several cents in value for premium class award flights or hotel rooms during peak season.

Bottom line

There are many ways to maximize your credit card rewards. Savvy credit card holders know that how you redeem your rewards is as important as how you earn them. By taking the time to study each program and learn how best to redeem your rewards, you can be sure to get the most value possible from your credit card points, miles or cash back.