How Do Credit Card Miles And Points Work?

Miles or points are the currency of an incentive program offered by a business to reward loyalty and get customers to spend more or shift more of their spending to a specific airline, hotel, bank or business.

By completing activities like purchasing an airline ticket and flying, staying in a hotel or spending on a credit card, you can earn points redeemable for rewards. The rewards offered by a program are usually related to what the affiliated business does. Airline miles can be redeemed for flights, and hotel-chain points can be redeemed toward hotel stays.

What Types of Businesses Offer Miles and Points?

Most airlines offer customers some sort of “frequent flyer” program where customers who fly an airline or spend on an airline’s co-branded credit card can earn points that are redeemable for a variety of rewards. Generally, the most valuable rewards that you can earn from frequent flyer programs are flight redemptions.

Likewise, hotel chains offer some type of program where you can earn points toward free stays. Marriott, Hyatt, Hilton, Wyndham and InterContinental Hotels all offer some form of hotel points that can be used toward stays within their respective hotel chain portfolio or brand.

Airlines and hotels aren’t the only types of businesses that offer loyalty programs. Starbucks offers a points program where you can earn free drinks. Many gas stations like Speedway offer a rewards program where you can get points redeemable for a variety of rewards, from free fountain drinks to gift cards.

Finally, many banks offer some form of transferable points or points redeemable for a variety of rewards. Some of the largest credit card rewards programs include Citi ThankYou Points, Chase Ultimate Rewards®, American Express Membership Rewards and Capital One Venture Rewards.

The worth of miles and points is a subject of debate in blogs, forums and the media. However, it boils down to the value of the rewards obtained from the program. There are a few things to consider when assessing the value of your rewards.

What Is Your Base Cash Value?

Many programs, like Chase Ultimate Rewards, offer an option to cash out miles for a statement credit at 1 cent per point. It’s reasonable to say that Chase Ultimate Rewards are always worth at least 1 cent each since they can be cashed out for that amount.

Cash redemptions are usually not the best way to redeem your points, but if a points program offers a cash redemption option, you should use that as a base value; never redeem your points for less value than you could get in cash.

What Is the Value of the Awards You Redeem For?

Some miles and points programs do not have an option to redeem points for cash. Consider which redemptions would otherwise cost in cash to determine if this is the most valuable option.

For example, redeeming miles for a round-trip ticket from Minneapolis to San Francisco, I can either pay 55,200 SkyMiles, plus a $12 fee or a cash fare of $597 for a Main cabin ticket. This makes my SkyMiles worth about 1.1 cents each for this specific award.

What About Valuations?

Many outlets publish miles and points valuations that can give you an estimate of what miles and points are worth. Some of these valuations consider only the highest-value award redemptions, like redeeming points exclusively for international first-class travel or luxury overwater villas in the Maldives. It is easy to selectively pick high-value redemptions to demonstrate that you can redeem for incredible value, but it is best to be realistic about how you will actually use your points. The most useful valuations are ones that consider how you are likely to use your miles and points.

There are many ways to redeem miles and points and how you ultimately redeem your miles and points will depend on your travel preferences and what you value. Here are a few of the things that you can get with your miles and points.

Aspirational Travel

For many avid miles and points fans, their favorite uses of their airline, hotel and credit card points are for “aspirational travel.” Aspirational travel includes things like first-class flights on large international airlines and luxury hotel suites. For many people, miles and points make this type of travel possible. Here is one example of how you might use points for luxury travel.

Using Chase Ultimate Rewards and transferring to Virgin Atlantic, you can book round-trip first-class flights on All Nippon Airways (ANA) between the United States and Japan for 145,000 points. Currently, those flights are priced at over $16,000, which means that you can get good value.

Many other airlines and hotel programs offer similar value in luxury-class redemptions.

Of course, international first-class suites aren’t the only way that you can elevate your travel experience. Having a cache of miles and points can allow you to upgrade your travel experience. Maybe that weekend trip you were planning on taking within the United States can be in a domestic first-class seat or extra legroom seat. Perhaps your hotel stay can be in a suite instead of a standard room. In every case, miles and points can be an avenue to being able to access higher-end travel.

Flexibility in Travel

One often-overlooked advantage of miles and points is that it can give you a certain amount of flexibility in your travel bookings. Often, tickets booked with miles or points have more flexible cancellation and change policies than tickets booked with cash.

Southwest Airlines, for example, allows you to cancel any ticket without penalty up to 10 minutes before departure. If you cancel a ticket that you booked with cash, you receive a flight credit that can be used for future travel booked through Southwest. If you cancel a Rapid Rewards booking, you receive a cash refund of the taxes and fees and the miles are deposited back into your account. You can then use those miles for a ticket without time constraints, as Southwest Rapid Rewards do not expire.

Many hotel chains offer similar flexibility with points stays. The best cash rates for hotel rooms may have restrictive cancellation policies, but a room booked with your hotel points will generally be cancelable until a few days before your stay begins.

Replace Cash Purchases

Many people simply like to use their miles and points for redemptions that keep cash in their pockets. If you book a ticket with miles or a hotel room with points where you would otherwise pay outright, you are effectively converting your miles and points into cash. When redeeming miles and points, it is a good practice to price your redemptions in both miles and cash, as not all redemptions represent good value or use of points.

Co-Branded Cards

Many airlines, hotels and retail stores offer their customers co-branded credit cards. These credit cards frequently feature special perks or increased earning rates for spending at the branded partner or discounts for things like in-flight purchases. You may see advertisements for co-branded credit cards on an airline or hotel’s website.

Most airline credit cards that carry an annual fee will offer some sort of luggage benefit. Many higher-end premium travel credit cards also offer perks like lounge access, a boost toward elite airline status or even companion fare tickets.

Flexible Points Cards

Credit cards offering rewards in programs like Chase Ultimate Rewards, Citi ThankYou Points or American Express Membership Rewards are flexible points credit cards. These credit cards earn points that can be transferred to a variety of airlines and are generally the most useful to people who are looking for either aspirational luxury travel or direct cash redemptions from their points. Frequently, flexible point credit cards earn increased rewards in certain categories like travel, gas, hotels or restaurants.

Flexible points credit cards frequently come with perks like travel and consumer insurance that can provide reimbursement for a hotel room in the event of travel delay or extend the warranty of things you buy. Some high-end flexible point credit cards offer perks like lounge access or credits for membership in TSA PreCheck or Global Entry. Usually, benefits are not tied to a specific brand.

Welcome Bonuses

One of the fastest ways of accumulating a mountain of miles and points is to sign up for a new credit card. Many banks and co-branded partners offer huge promotions to new card members who are approved for a card and spend a certain amount within a few months. Larger bonuses are generally given to people applying for high-end premium cards with an annual fee, but oftentimes the bonuses offer value that far exceeds that first-year annual fee.

Spending Categories

Many points-earning credit cards award bonus points for spending in specific categories like airlines, restaurants, gas or groceries. You can start with miles and points with one credit card, but as you grow your portfolio of point-earning credit cards, you will want to take advantage of spending categories by charging your spending to the card where you earn the most points.

For example, if you are looking to earn Chase Ultimate Rewards, you might put your dining purchases on a Chase Sapphire Preferred® Card or Chase Freedom Flex℠* to earn 3 points per dollar/3% cash back, put your hotel, car rental and airline purchases on your Chase Sapphire Preferred to earn 2 points per dollar and your other spending on your Chase Freedom Unlimited® card to earn 1.5 points per dollar spent.

Portal Bonuses

Issuing banks with transferable points programs frequently offer massive bonus earnings on travel booked through their travel portal. For example, the Capital One Venture X Rewards Credit Card offers 2 miles per dollar on all eligible purchases, 5 miles per dollar on flights booked through Capital One Travel and 10 miles per dollar on hotels and rental cars when booking via Capital One Travel. Several cards from American Express and Chase also feature similarly generous bonuses for travel booked through their respective portals.

There is no one “best” card, but there might be a few credit cards that are the best for you. The number of credit cards out there can make finding the best options daunting, but with a little bit of research, you’ll be on your way.

From the best general travel rewards cards to the best airline card or hotel card, it’s important to remember that what might be good for someone else may not align with your particular spending habits and preferences.

Miles and points can generate exceptional rewards out of your everyday spending. They can open the door to luxury travel or simply be a way to put a bit of extra cash in your pocket.

The best way to get started is to understand your spending patterns, think about what type of rewards you prefer and pick a program that offers ways to earn points that match your spending patterns and rewards that cater to your preferences.