The Worst Ways to Redeem Credit Card Rewards

Cheerful latin american woman relaxing at home on a shopping spree online holding her credit card very happy

At Experian, one of our priorities is consumer credit and finance education. This post may contain links and references to one or more of our partners, but we provide an objective view to help you make the best decisions. For more information, see our Editorial Policy.

It's hard to resist the allure of great deals and free stuff, and rewards credit cards can certainly provide in that regard. From introductory bonus offers to the promise of earning rewards that could be used for travel, rewards programs can be one of the greatest perks of credit cards. Before redeeming these rewards, however, you'll want to make sure you're getting the best value. The value of reward redemption options varies significantly, and depending on your card and the redemption option you select, you could either come out ahead or leave money on the table.

3 Low-Value Ways to Redeem Credit Card Rewards

Some reward options offer excellent value, but others generally give cardholders the worst bang for their buck. There are exceptions, of course, but you should think twice before redeeming rewards in the following three ways:

  1. Merchandise: Some rewards programs allow you to cash in points for items in their catalog, often ranging from jewelry to electronics to sports equipment. These things can be tempting, but the value of the points required may outweigh the actual cost of the merchandise.
  2. Cash back on a travel card: Travel cards usually offer excellent value on travel redemption options, but your value can plummet if you go for cash back instead.
  3. Pay with points: Some issuers let you use points to pay for new purchases, though the value per point can be poor.

Read on for more on why these options may not be the best ways to redeem your rewards.

How to Redeem Credit Card Rewards

Reward currency (such as cash back, points or miles) can differ by card and card issuer, and rules for redemption tend to vary as well. Some rewards cards only have one redemption option, while others let you redeem rewards in a variety of ways, such as for gift cards, statement credits, travel or merchandise.

A decent base value for credit card rewards is 1:1, where one point equals 1 cent. That means a rewards program where $1,000 in spending would land you $10 in rewards value, whether you choose to redeem it as cash back or for another reward valued equivalently. Some redemptions, especially merchandise, can offer a lower value than other options depending on what you get in exchange for your points or miles.

You can determine the value by taking the value of the reward item and dividing it by how many points are needed. For example, if a blender worth $100 costs 10,000 points, you would divide 100 by 10,000. That leaves you with 1 cent per point, or a 1:1 value, making it a deal worth considering. But if you could buy the blender at a retailer for $50, redeeming 10,000 points for it wouldn't be a great use of your points since their value then becomes 0.5 cents apiece.

Here's why you may want to avoid redeeming your rewards in the following ways.

1. Merchandise

As mentioned, merchandise is one of the worst ways to redeem reward points since items may be overvalued and offer less than a 1:1 return on your points.

Here's a real-life example. I have a rewards card through my credit union, and I can score retailer gift cards at a 1:1 ratio through my card issuer's rewards portal. In order words, 5,000 points gets me a $50 gift card at a variety of retailers, including Walmart.

Redemption options for merchandise, however, leave something to be desired. For the same 5,000 points, I could get a Coleman 16-quart cooler—which is sold at Walmart for less than $30. In other words, the same amount of points offers vastly different value depending on how I cash them in.

2. Cash Back on a Travel Card

While cash back cards excel at offering strong value on cash back redemptions, other cards—especially travel rewards cards—typically offer low value on cash back redemption.

My aforementioned rewards credit card, which touts itself as a travel rewards card, exemplifies this. If I redeem my points for cash back (in the form of a debit MasterCard) the point value is less compared with other options.

I can score a $50 gift card that can be used with specific retailers for 5,000 points at a 1:1 ratio, but if I want cash back to spend anywhere, that same $50 reward will cost me 6,500 points, which is a less appealing offer.

If you have an American Express card, you can use their rewards calculator to estimate the redemption value of each option. For example, if you have The Platinum Card® from American Express, 10,000 points has a very different value depending on how you choose to redeem it. It can net you up to $100 in gift cards, but only $60 in value if you use the points to cover your card charges. Terms apply.

There are exceptions, of course. For example, the Capital One Venture Rewards Credit Card has a Purchase Eraser redemption option, which allows miles to be applied as statement credit to eligible purchases at a 1:1 value.

3. Pay With Points

Just as some rewards cards let you redeem points or miles to cover past purchases, many also allow you to use your points to pay for new purchases, whether that's through the issuer's merchant portal or on participating retail websites. This provides more options than selecting an item from a rewards catalog, but you may get less than a 1:1 value when paying with points. Going back to The Platinum Card® from American Express, 10,000 points can score you $100 in value when booking flights through American Express Travel, but if you want to use it to shop in their merchant portal, they may only be worth $50.

That said, your rewards portal can still be a good source for deals. Before you make any purchases, be sure to check the card issuer programs, such as Chase Ultimate Rewards, and you may find an offer that's hard to pass up.

How to Maximize Credit Card Rewards

Choosing the wrong redemption option can waste your points, but there are plenty of ways to maximize your credit card rewards program:

  • Discover your card's most valuable redemption option. For example, with cash back cards, a statement credit typically offers the best value, while travel accommodations may give you the best bang for your buck with a travel card.
  • Consider introductory bonuses. Some rewards cards offer a large chunk of points, miles or cash back if you spend a certain amount within a set time frame after opening the account. It's crucial you don't spend unnecessarily just to meet the threshold, but if you already have big purchases to make, scoring one of these bonus offers can boost the value you get from the card.
  • Pay attention to bonus categories. Many rewards programs offer a higher percentage of points or cash back on certain types of spending, such as travel, dining or gas. Think about how you're most likely to use a credit card, and consider finding one with greater rewards for those spending categories to increase the value of your rewards.
  • Look for other means of value. Some cards offer perks like free checked baggage or airport lounge access, discounts on rideshares and other benefits that help further improve the value you get from the account.

Your Mileage May Vary

It's important to remember that what makes a perfect card for one person is a bad deal for another, and vice versa. It comes down to the type of spending you'll use, the card's rewards program and how you want to redeem rewards. Compare the best rewards credit cards on Experian to find the right one for you.

The purpose of this question submission tool is to provide general education on credit reporting. The Ask Experian team cannot respond to each question individually. However, if your question is of interest to a wide audience of consumers, the Experian team may include it in a future post and may also share responses in its social media outreach. If you have a question, others likely have the same question, too. By sharing your questions and our answers, we can help others as well.

Personal credit report disputes cannot be submitted through Ask Experian. To dispute information in your personal credit report, simply follow the instructions provided with it. Your personal credit report includes appropriate contact information including a website address, toll-free telephone number and mailing address.

To submit a dispute online visit Experian's Dispute Center. If you have a current copy of your personal credit report, simply enter the report number where indicated, and follow the instructions provided. If you do not have a current personal report, Experian will provide a free copy when you submit the information requested. Additionally, you may obtain a free copy of your report once a week through April 2022 at AnnualCreditReport.