How credit card points work

By   |   Verified by Bill Ryan Natividad   |   Updated 10 Oct 2023

Perhaps you've heard about travel hacking and using credit card points to fly in business or first class? Maybe you aren't quite sure how they work, what you can do with them, and if they're really worth it?

If you're considering getting a credit card that earns points, scroll down to find out how it works in more detail.

Before we go any further


If you've done a credit card comparison, you'll probably have noticed that there is a lot of jargon to describe credit cards that earn points. Here's what the jargon means in simple terms.

Earn rate

The number of points you are rewarded with is called the points earn rate. For example, 1 point per $1 spent.

Eligible spend

Only eligible purchases earn points. Balance transfers, cash advances, and gambling transactions do not earn points.

Points cap

The maximum number of points you can earn in a given period of time. Spend above the cap will not earn points. For example, earn points up to $2,000 per statement period.

Points tier

Some cards have tiers, which are based on how much you spend. Depending on how the tiers are set up, the earn rate may increase or decrease with a higher tier.

Sign up bonus

Some credit cards offers bonus points for signing up and then meeting any subsequent spending target within a given period.

Spending target

What you need to spend in order to get the sign up bonus, if there is one. For example, spend $3,000 within 90 days of card approval.

Covering the basics

How do credit card points work?

Credit card points are a type of reward earned when you use your credit card. There are specific types of reward, for example, frequent flyer credit cards and cashback credit cards.

Points are offered by banks as an incentive to attract new customers, stimulate existing cardholders to spend with their card, and encourage loyalty.

Credit cards earn points into a rewards program that may be operated by the bank or an airline. For example, American Express Membership Rewards and Altitude Rewards are bank-operated rewards programs, whereas Qantas Frequent Flyer and Velocity Frequent Flyer are both airline rewards programs

The number of points earned may vary depending on the purchase. Points are typically earned per $1 spent, but some cards may have a limit on how many points can earned. Limits may be defined as a cap or tiers for a given period. For example, one might be able to earn a maximum number of points per statement period or earn fewer per dollar spent above a certain amount of spend in a statement period.

Getting them

How to earn credit card points

There are a number of ways to get credit card points. These are the main ways.

Referral bonus points

Some cards will reward you with points when you refer someone who signs up for a credit card with them. American Express's Refer-a-Friend program is a prime example, giving members the ability to earn a large number of points this way.

Sign up bonus points

Banks use credit card sign up bonus points to attract new customers. The number of points you can earn from a bonus can be quite substantial, especially with premium credit cards which typically have the biggest sign up bonuses.

The sign up bonus will not be deposited until you spend a certain amount on the card within a period of time, i.e. the spending target. Check what that is before applying so you don't miss out.

Spending with your credit card

Using your card for everyday purchases and bill payments means you can consistently earn points. The earn rate will determine how many points are rewarded per $1 spent. Points caps and tiers may also come into effect for larger spenders.

What you can use them for

How to use credit card points

Credit card points can be redeemed for a number of different things, but not all redemptions are of equal value.

Convert points to cash

Some banks let you convert points you've earned into cash, which can be used to pay off your balance. This may also be used to offset the cost of the card's annual fee.

Flights and upgrades

Redeeming credit card points for flights and ticket upgrades is very popular because they are the best way to extract the most value from points, especially when redeemed for business and first class tickets.


Credit card points can be redeemed to buy things electronics, clothing, and the like via the reward program's store. However, this is widely regarded as being poor value.

It's not complicated

What are credit card points worth?

The dollar value of credit card points depends on what you redeem them for.

Use this calculation to work out what the value of your points are when redeeming them:

Value of the rewards / points required for redemption = per point value

If you booked a business class return Sydney to Melbourne flight with Qantas priced at $500 using 36,800 points, your points would be valued at 1.3 cents each.

For more about the value of rewards points, click here.



Are credit card points taxable?

Points themselves are not taxable. However, if you took points in lieu of salary and redeemed them for a flight, this could be taxable.

Are credit card points better than cashback?

Earning credit card points gives you the flexibility to redeem them for travel, cash, or goods and services. Cashback is a much simpler way of earning rewards, but it is typically not as lucrative as points.

Do credit card points expire?

It is possible that your credit card points may expire. If points do expire, as in the case for Qantas and Velocity, the peiod of time before expiration may vary between reward programs. Check what the terms and conditions are if you are unsure. You may be able to avoid expiration by earning additional points.

Can credit card points be converted into cash?

Depending on the rewards program you earn points into, you may be able to convert points to cash. However, this redemption does not generally offer good value.

Can credit card points be shared?

Some reward programs allow points to be shared or pooled with other family members or friends, but it varies between programs. Expect there to be limitations. For example, Qantas let you transfer Qantas Points to family and Velocity Points can be used to book flights for anyone.