How do rewards credit cards work?

Rewards credit cards keep on giving – as long as you keep spending. (iStock)

While rewards credit cards continue to grow in popularity, U.S. financial consumers don’t always understand how their cards work and what rewards they actually earn.

According to a 2019 study from J.D. Power, rewards card providers are getting so competitive and offering so many rewards, consumers don’t always get what they expect from their rewards card experience.

“The average credit card customer today has roughly 16 different benefits available, yet only about one-third of customers say they completely understand all of the benefits available to them,” said John Cabell, Director, Wealth and Lending Intelligence at J.D. Power. “While the last several years of rewards-based competition among issuers has served to steadily increase overall customer satisfaction, issuers may have wrung all of the value they can out of this approach.”

Rewards Credit Cards Defined

Rewards credit cards essentlally enable users to earn benefits from using their plastic. The more a card customers use a rewards card, the more benefits that customer accrues.

“Membership has its privileges and rewards credit cards have their perks,” said Mark Nicholson, marketing director at Match Financial, a personal financial services platform. “Most rewards credit cards allow users to earn cash back, points, miles, or merchandise based on their spending.”

Nicholson said there’s a built-in incentive for users to keep choosing rewards cards for spending purposes. “Using a rewards card to make purchases allows a cardholder to accumulate the various perks or credits available on an ongoing basis,” he said.

By visiting Credible, users can quickly compare the best rewards credit cards that meet their needs.


The best rewards credit card strategies are part art and part science, experts say.

“To secure the perks of a cashback or rewards credit card, you need to be as intentional as you possibly can be when spending, and go in with a solid plan,” said Jeff Rose, chief executive officer of Good Financial Cents, in Nashville, Tn. “If you manage your card spending right, reward credit cards offer a variety of benefits, such as signup bonuses and other perks like no annual fees or free FICO score updates on your card statement.”According to Rose, there are many great reward credit cards available. What reward credit cards benefit you the most, however, are specific to your individual needs.


Split in Two

Other card strategists say that rewards cards are generally split into two categories – and financial consumers need to know that.

“Traditionally, rewards cards come in two forms — the first is frequent flyer miles, hotel points, or other rewards that aren’t straight cash,” said Alex Miller, founder and CEO of “The second is actual cash back, where you receive a percentage of your purchases back as cash, that you can either use to transfer into a bank account, wipe charges on your credit card, or, in some cases, invest into a brokerage account.”

You can easily compare the benefits of either type of card by visiting Credible today.


On the downside, many rewards cards come with an annual fee, but there’s an upside there, as well, as long as you spend using the card. “There are plenty of no-fee versions of cards that still do earn some rewards and provide benefits,” Miller said. “Traditionally, the higher the annual fee, the more benefits you’ll be provided.

Miller’s favorite card is a rewards card that provides cash back on everyday purchases. This type of card can provide two percent back on all purchases. They can even be transferred into an account for stock purchases.