Sequin Blog


How Do Credit Card Reward Points Work? | The 3 Program Types & How You Can Cash In

February 6, 2024

Headshot of Vrinda Gupta

Vrinda Gupta

Sequin CEO & Co-Founder | Women's Finance Expert | Visa Alum

Let’s talk about credit cards.

More specifically — the rewards, points, and literal cash back that’s waiting for you when you know how to spend savvy (and how to cash in).

When searching for a credit card, you’ve surely come across various card types, all touting different rewards. Why? It's all about the incentives.

See, they want you to swipe and spend with them. As an incentive for you to use their card, they throw in cash back, co-branded merchant partnership benefits, or points-based perks!

But here's the scoop.

You’ve got to know how credit card reward programs work to use them to your advantage. You’ll also want to spend smartly, and not let the idea of a free flight or money back on your statement cause you to spend in a way that doesn’t align with your values—or worse, get you into unwanted credit card debt.

We’re outlining the three most common reward program types and all you need to know to cash in. Now, let's get you swiping to make your spending more rewarding.

First Things First

Before we go full-on reward mode, let's address debt. If you've got credit card debt, no amount of rewards can overshadow the importance of tackling it. Priority number one should be paying off your credit card debt.

Focus on this first, because financial freedom is the ultimate reward.

The credit cards with the best programs and rewards demand a stellar credit score. If you’ve been working on boosting your credit score, you’re on the right track to qualifying for a card with some pretty epic rewards.

Understanding Credit Card Reward Points

First, let’s define two key terms:

Earning rewards is what happens with every dollar you spend on a rewards credit card. Credit cards may incentivize certain types of spending with more rewards in specific categories — like travel or dining.

Redeeming rewards is where you’ve got the options. The biggest difference between rewards program types is how far your points go when it comes to redemption.

Understanding the best ways to earn and redeem for each reward program type is crucial.

No matter which credit card rewards program you’re looking at, they all require you to earn on every dollar you spend. And regardless of the type of program, they all give you the ability to redeem for:

  • Cash Back: Earned through your credit card purchases.

  • Statement Credits: A direct reduction on your credit card balance.

  • Check: A literal physical check sent to you by your card issuer.

Credit card issuers handle these programs to make your experience with earning and redeeming their rewards smooth and easy.

Type 1: Cashback Rewards Programs

First up, we've got cashback rewards. They take a percentage of the money you spend and credit it back to your account.

Here are a couple of examples of how this might be structured:

  • Flat Rate — Some cashback reward programs keep it simple, offering a flat rate on all purchases, like the Wells Fargo Active Cash card. This card treats you to 2% cash back on every dollar you spend.

  • Category-Specific Rewards — Other cards offer different cashback rates based on specific spending categories. Like how the American Express Blue Cash Preferred Card gives you 6% cashback on groceries but only 3% on gas.

Either way, you get money back in the form of cashback every time you shop. Some rewards programs require you to reach a certain earning threshold before you’re able to redeem. But for others, redeeming isn’t tied to a specific earning threshold. Be sure to be aware of the terms and conditions of your specific rewards program.

Type 2: Co-Branded Rewards Programs

If you’re loyal to a specific airline, hotel, or merchant, this one's for you.

Co-branded rewards programs are typically merchant-specific cards. Think cards that offer loyalty programs to specific airlines or event hotels—like United or Delta. You may have also seen specific merchants offer their own loyalty rewards programs — like Amazon or Costco.

These card rewards programs allow you to earn rewards for each purchase, and redeem them towards travel portals and merchant-specific benefits .

You can redeem points for travel or merchant-specific benefits in a couple of different ways.

  • Merchant Partners — Because these co-branded cards are generally a partnership between a specific merchant, airline, or hotel, the best way to redeem rewards is likely with the merchant whose name is on the card. Some of these perks can include free flights, nights at hotels, or special elite status.

  • Travel Portals — These portals (often hosted by the credit card issuer) also allow you to use your points to book flights, hotels, and more. Many of these travel credit cards even come with a concierge to help you book travel! Simply call the back of your credit card to check out your specific card benefits.

  • Cashback or Statement Credit — Even for co-branded credit card rewards programs you can always choose to redeem for cashback or a statement credit. While it’s an option, it’s often not the best way to make your points go as far as they would using them for travel or on merchant-specific perks!

Type 3: Points-Based Reward Programs

It’s all about options with this one. For Points-Based Reward Programs, points accumulate every time you spend—and unlock a world of options on how you can redeem the points.

These points aren't limited to one purpose. Instead, they offer versatility. Cash in your points for cashback, travel, gift cards, or statement credits. The beauty of Points-Based Reward Programs is in their flexibility and value.

  • Travel — Turn your points into plane tickets, hotel stays, and unforgettable experiences.

  • Gift Cards — Convert your points into gift cards from your favorite retailers.

  • Cashback or Statement Credits — Transform your points into direct reductions on your credit card balance, or just ask for a check!

This kind of flexible point system gives you the freedom to choose how to redeem your rewards in a way that suits you best. The ability to choose how you redeem is what it’s all about.

Maximizing Rewards and Points

Let's talk about bonus points. Also known as—the secret to maximizing your credit card rewards. The best way to snag bonus points is through welcome offers and special reward categories.

Certain cards grant extra points in specific spending areas like dining or gas. It's all about strategically stacking up those bonus points for bigger and better rewards.

Consider these strategies:

  • Welcome Bonuses: Many credit cards give new users welcome bonuses. Capitalize on these by choosing a card that aligns with your spending habits (and reward-type preferences).

  • Sequin Tip: Make sure to stay mindful of your spending. Opening and closing multiple credit cards may negatively affect your credit score. Likewise, increasing your spend to hit a sign-up bonus or going into debt isn’t worth it. No matter the welcome bonus.

  • Bonus Rewards Categories: Some cards offer elevated point earnings in specific categories. For instance, you might find a card that offers extra points for online shopping, dining, or travel. Identify your main spending areas and select a card that offers rewards tailored to them.

  • Timing: Be mindful of promotions and special events. Some credit cards offer limited-time bonus points during specific periods. Time your purchases to make the most of these opportunities.

Be Mindful of Annual Fees

So, what about annual fees?

Not all annual fees are bad. In fact, some premium cards with higher fees offer great perks that make them well worth the cost. Just make sure you're getting back more (in reward points and benefits) than the fee you're paying annually.

Remember to put your upcoming annual fee in the calendar so you’re not surprised by an unexpected charge.

For those of you who prefer not to have any annual fee, there are still plenty of card options out there that offer great rewards.

Do your research and find the credit card rewards program that best aligns with your spending and fee preferences.

The Key Takeaways

  • Diverse Rewards: Credit card rewards are not one-size-fits-all. They come in various forms—from cashback to travel perks to flexible points systems that you can redeem for gift cards or even electronics.

  • Financial Freedom: Before diving into rewards, handle any current credit card debt. Remember, financial freedom is far higher a reward than any cash back or travel program could offer.

  • Credit Score Matters: The top reward programs often require an excellent credit score. If you could use some tangible tips to boost your own score, Sequin offers credit score-boosting tools, expert-led workshops, and education to elevate your credit game.

  • Incentive for Spending: Credit card rewards programs make your spending experience more rewarding. Learn how it works, make smart decisions, and use your everyday purchases to earn valuable rewards.

  • Three Types, One Goal: Cashback programs, co-branded rewards programs, or points programs. Remember, the best credit card is the one that aligns with your lifestyle.

Sequin CEO, Vrinda Gupta (who created popular credit cards at Visa like the Chase Sapphire Reserve) says—

“The best credit card for you is the one that matches your lifestyle. If you’re a frequent traveler, a credit card with travel rewards might make sense for you, and you can earn thousands of dollars in rewards that outweigh a high annual fee. However, if you don't travel as much, but are a heavy Amazon shopper, perhaps a co-branded credit card might be a better fit for you.”

Consider your spending patterns, find a card that aligns with how you spend, and let the rewards roll in. And hey, if you need a little guidance, Sequin's got a credit card matchmaking quiz waiting for you!

Go forth, and swipe wisely.


Opinions expressed here are author's alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities. The content on this page is accurate as of the posting date however since then some of the offers may have expired. Please see the bank's website for the most current credit card offers.