Calculating Credit Card Rewards Points

So you want to get a credit card that offers reward points? A rewards credit card is a great type of credit card to have. Since you know what type of card you are looking for, you have done all of the research necessary. You have searched and compared each and every reward card, you've read the fine print, and asked all of the necessary questions. The final thing to do is figure out exactly the number of rewards you receive from the card and how beneficial they really are to you.

First, let's evaluate the various types of rewards there are:

Rewards based on points:

This type of reward is based on spending patterns. For every dollar that is charged to your account, you will receive a reward point that is equivalent to that. When you reward points reach a certain number, then you are rewarded and you can cash in on your reward. One reward might be a gift card whose value is determined by the number of points you've accumulated. For instance, you may use your card and reach 5000 points, and then those points can be redeemed for a $50 gift card. This would mean that every dollar you spend with your card, is equivalent to one cent. So, accumulating these points may take time, but redeeming your rewards(s) will be worth it.

Percentage Rewards:

You can also easily calculate the reward points you receive from your credit card. Here's an example: you may have a credit card whose terms say that you will receive a 1% reward (cash-back) for each dollar spent. You can calculate your reward by estimating that if you spend $10,000 in 2 years on your card, your reward is $100. This is easy to calculate if the reward remains at 1%, however, read the fine print and watch for sliding percentages where the card might only offer 0.25% reward after a one-time reward of 1%.

Airline Miles:

Calculating your skymiles may not be as easy as your cash-back rewards, but it is possible. First, you must know how many miles are needed for you to travel to your destination, and what the cost of your flight would be. For example, if you need 25,000 miles to travel to your class reunion, and the flight costs, and you get one mile for ever dollar you spend with your card, then you can divide 400 by 25,000. Once you do this calculation, you can figure out that you would be receiving 1.6% cash-back for every dollar you spend.

There is something else you can also calculate. That is your annual fee. It's great to receive rewards and incentives from your credit card, but when you have to pay an annual fee just to have the card, you must make sure the perks you receive outweigh the annual fee. Knowing how to do your credit card research and calculate your rewards, puts you in control of your spending habits and your credit card.