Guide to understand credit card rewards system

It is important for credit card users to understand all about their credit card’s rewards to ensure they are using them optimally. The first step for doing that would be understanding the various terms that are related to credit card rewards.

Credit cards are popular for a number of reasons. One of the most important of them is rewards. Reward programs are an excellent perk that help you save as you shop. Different cards or card issuers offer a variety of rewards with their cards such as discounts, cashback, air miles, and more.

Speaking of reward points, two major private sector banks recently announced devaluations on some of their popular credit cards wherein benefits like cashback, reward points, and travel perks were cut back.

In this context, it is important for credit card users to understand all about their credit card’s rewards to ensure they are using them optimally. The first step for doing that would be understanding the various terms that are related to credit card rewards. Let’s look at some of them here.

Membership Fee

Membership or annual fee is a recurring charge levied by the card issuer for maintenance of your credit card account. The fee can vary based on the credit card and the benefits it offers. For instance, some premium cards may charge a higher membership fees in exchange for enhanced rewards and benefits, compared to a no-frills card which doesn’t charge a fee but also offers limited benefits.

Welcome Bonus

To make the credit card more attractive, card issuers may sometimes offer new cardholders a welcome bonus or sign-up bonus. This is usually a one-time reward that is offered in the form of accelerated reward points, cashback, or vouchers in exchange for meeting a spending requirement within a specified period of the account opening.

Point Valuation

When you enter into an agreement with a credit card company, familiarise yourself with the redemption value of the card’s reward points or miles, which can vary among different card companies. This can help you maximise the benefits you can earn with your rewards.

Reward Points

This is the most common reward type offered with a credit card. Here, cardholders can earn a set number of reward points for every rupee they spend on eligible purchases using their credit card. These points can be redeemed for a variety of items including merchandise, gift vouchers, or even cash credits.

Co-branded Rewards

Credit card issuers sometimes partner with select retailers, airlines, or other companies to offer you rewards specific to that brand. These can include discounts on purchases from that brand, exclusive access to events, or bonus points for spending with the partner company.

Redemption Options

Card issuers usually offer multiple options for cardholders to redeem their accumulated reward points, miles, or cashback. Popular redemption options include travel bookings, purchasing merchandise, gift cards, receiving statement credits, and more.

Revolving Credit

Revolving credit permits cardholders to borrow funds within a set credit limit and repay them gradually, with interest applied to the remaining balance. Unlike regular loans with fixed monthly payments, revolving credit provides repayment flexibility, enabling cardholders to maintain balances over successive months.

Fuel Rewards

As the name suggests, these rewards typically fetch you cashback, discounts or waiver on fuel
purchases at partner fuel stations.

Cashback

Cashback rewards offer a specific percentage of your purchase cost back as cash rewards. This cash reward is directly credited in your account or offered as statement credits.

Miles

Air miles or miles are a type of reward aimed at cardholders who are frequent fliers. Air miles can be earned on specific purchases and can be redeemed for flight or hotel bookings, upgrades, rental cars, and other travel-related expenses.

Lifestyle Rewards

This is another category of rewards that are popular among card holders. These rewards, commonly offered as discounts or cashback are tailored to specific lifestyles expenses such as dining, shopping, entertainment, or wellness services.

Bonus Categories

Bonus categories are categories of spends that can fetch you higher rewards, generally expressed as a percentage. These typically include groceries, fuel, restaurants, travel or entertainment spends. Credit card rewards are definitely a big factor when it comes to choosing a credit card.

But, they shouldn’t be the only one. Before finalising a credit card, shop around for credit card deals being offered by different banks. This can help you narrow your search to a card that aligns with your needs, spending habits, and lifestyle. Also consider factors like annual fees, interest rates, and terms and conditions applicable to the card before finalising your choice.

Adhil Shetty, CEO, BankBazaar.com

Credit cards are popular for a number of reasons. One of the most important of them is rewards. Reward programs are an excellent perk that help you save as you shop. Different cards or card issuers offer a variety of rewards with their cards such as discounts, cashback, air miles, and more.

Speaking of reward points, two major private sector banks recently announced devaluations on some of their popular credit cards wherein benefits like cashback, reward points, and travel perks were cut back.

In this context, it is important for credit card users to understand all about their credit card’s rewards to ensure they are using them optimally. The first step for doing that would be understanding the various terms that are related to credit card rewards. Let’s look at some of them here.

Membership Fee

Membership or annual fee is a recurring charge levied by the card issuer for maintenance of your credit card account. The fee can vary based on the credit card and the benefits it offers. For instance, some premium cards may charge a higher membership fees in exchange for enhanced rewards and benefits, compared to a no-frills card which doesn’t charge a fee but also offers limited benefits.

Welcome Bonus

To make the credit card more attractive, card issuers may sometimes offer new cardholders a welcome bonus or sign-up bonus. This is usually a one-time reward that is offered in the form of accelerated reward points, cashback, or vouchers in exchange for meeting a spending requirement within a specified period of the account opening.

Point Valuation

When you enter into an agreement with a credit card company, familiarise yourself with the redemption value of the card’s reward points or miles, which can vary among different card companies. This can help you maximise the benefits you can earn with your rewards.

Reward Points

This is the most common reward type offered with a credit card. Here, cardholders can earn a set number of reward points for every rupee they spend on eligible purchases using their credit card. These points can be redeemed for a variety of items including merchandise, gift vouchers, or even cash credits.

Co-branded Rewards

Credit card issuers sometimes partner with select retailers, airlines, or other companies to offer you rewards specific to that brand. These can include discounts on purchases from that brand, exclusive access to events, or bonus points for spending with the partner company.

Redemption Options

Card issuers usually offer multiple options for cardholders to redeem their accumulated reward points, miles, or cashback. Popular redemption options include travel bookings, purchasing merchandise, gift cards, receiving statement credits, and more.

Revolving Credit

Revolving credit permits cardholders to borrow funds within a set credit limit and repay them gradually, with interest applied to the remaining balance. Unlike regular loans with fixed monthly payments, revolving credit provides repayment flexibility, enabling cardholders to maintain balances over successive months.

Fuel Rewards

As the name suggests, these rewards typically fetch you cashback, discounts or waiver on fuel
purchases at partner fuel stations.

Cashback

Cashback rewards offer a specific percentage of your purchase cost back as cash rewards. This cash reward is directly credited in your account or offered as statement credits.

Miles

Air miles or miles are a type of reward aimed at cardholders who are frequent fliers. Air miles can be earned on specific purchases and can be redeemed for flight or hotel bookings, upgrades, rental cars, and other travel-related expenses.

Lifestyle Rewards

This is another category of rewards that are popular among card holders. These rewards, commonly offered as discounts or cashback are tailored to specific lifestyles expenses such as dining, shopping, entertainment, or wellness services.

Bonus Categories

Bonus categories are categories of spends that can fetch you higher rewards, generally expressed as a percentage. These typically include groceries, fuel, restaurants, travel or entertainment spends. Credit card rewards are definitely a big factor when it comes to choosing a credit card.

But, they shouldn’t be the only one. Before finalising a credit card, shop around for credit card deals being offered by different banks. This can help you narrow your search to a card that aligns with your needs, spending habits, and lifestyle. Also consider factors like annual fees, interest rates, and terms and conditions applicable to the card before finalising your choice.

Adhil Shetty, CEO, BankBazaar.com