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What are Credit Card Rewards & How do they Work?

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What are Credit Card Rewards & How do they Work?

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One of the main advantages of using a credit card is the rewards associated with it. By rewards, we mean anything that you get for free for simply using a credit card. These rewards could come to you in the form of points which you can exchange for actual stuff, cash, or the reward itself.

That aside, rewards aren’t the only reason to use a credit card. You also have free access to credit. Meaning that it’s like a loan that’s given to you to make purchases, which you repay at the end of the month. In this article, we’ll cover the hot topic of credit card rewards, which arguably is a major determining factor in choosing a credit card.

What are credit card rewards? Why do we get them?

Almost every single credit card out there offers you various credit card rewards for using them, like points, miles, cashback, discounts, and so on. These rewards are given to you to make you want to spend more on your credit card, instead of spending cash.

The reason for this is pretty simple - banks (or NBFCs) want you to get into the habit of putting all your expenses on your credit card. Banks benefit from this by collecting interest from you in case you pay your credit card bill late, or choose to convert a credit card expense into an EMI.

That said, if you are disciplined enough to never miss your payments or overspend on your credit card, then you should be able to enjoy the rewards without worrying about any consequences.

How Do Credit Card Rewards Work?

First thing to acknowledge is that there are different types of rewards. It’s never one-size-fit-all. Banks, or credit card companies at large, secure these rewards at a bulk and offer them to you at a substantial discount making it more attractive to you. Here are the different types of credit card rewards:

Cashback rewards: 

This is pretty self-explanatory. At the end of a specified period, the bank or card company deposits some cash in your account or wallet that you can use to buy other stuff. Most cashback-offering credit cards don’t give you actual cash, but give it to you some equivalent that can stand in for cash.

For instance, this amount could be credited to your credit card balance, reducing your total due amount. For instance, if you have a card that offers a 5% cashback on movie tickets with a cap of ₹100 per billing cycle, and you spend ₹2,500 on movie tickets, you'd earn a cashback of ₹100.

Credit card reward points: 

These are points offered for purchases made on the card. These points are a factor of the actual transaction value on your credit card. Points earned vary based on spending and the credit card issuer's policy. Fi Money offers a credit card that give you 5X the reward points on your spends on your top 3 brands. Say you’ve spend a total of ₹22,000 across Myntra, Amazon and MakeMyTrip, then at the end of the month, you get 1.1 lakh Fi-Coins which you can in turn use to exchange for goodies. 


Credit card miles work pretty much like credit card points with a few minor differences. You earn reward currency in the form of airline miles on specific transactions. Typically, these are travel-related spends although many credit cards offer miles as rewards on other general spends as well. You can then redeem the airline miles you’ve accumulated to book flight tickets and make hotel reservations with the service providers that the card issuer has partnered with.

Other benefits

Apart from these, credit card companies offer a host of benefits that aren’t dependent on the number of transactions you make, but are capped. For example, a lot of credit cards offer you access to lounge areas at airports, but you can only access these lounges a certain number of times a year.

Summing It Up

A rewards credit card may be a good option if you have a good credit score and the rewards match your needs. It's critical to ensure you don't overspend or end up in a position where you can't pay your credit card bill.

Frequently Asked Questions

Are credit card reward points worth it?

Credit card reward points can be worth it if used responsibly and bills are paid in full each billing cycle, avoiding interest charges and maximizing rewards earned.

How long do credit card reward points last?

Credit card reward points have a validity that can range from 2 to 3 years, depending on the credit card. To determine the specific validity of your rewards, it is recommended to review the terms and conditions of your credit card.

Can you cash out credit card points?

Most credit cards let you redeem credit card points for items in the issuer's catalog. Some credit cards offer cash redemption, usually at a conversion rate set by the issuer.

Do you get credit card points if you pay off your dues immediately?

Credit card rewards and points are earned based on purchases, not payment timing. Prepayment of credit card liabilities does not affect reward eligibility for purchases made.

Does paying off a credit card too fast hurt your credit?

Paying off a credit card debt quickly will not hurt your credit. In fact, it can help by reducing the risk of late payment and interest charges.

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