Credit Card Points In Australia

What are credit card points?

Credit card points are a type of incentive that you can earn by using your credit card to make purchases. The number of points you can earn will vary by card provider and purchase type. You can typically redeem points for cashback, travel, statement credits, merchandise, gift cards or other rewards.

Points vs. cashback

Points and cashback are two of the most popular types of rewards credit cards offer. They both have perks but differ in a few significant ways.

Cashback rewards are straightforward and have a fixed value, typically 1 cent per dollar. You can usually only redeem cashback for a statement credit or gift card. Cashback works similarly on every credit card.
Points are more complicated as they have fluctuating values and many different redemption options. Depending on the rewards or loyalty program backing them, they work differently, so getting the most out of your points may require some strategising.

Unlike cash, credit card points are credits you can only use with a specific rewards program, usually hosted by a bank or co-branded with a third party, like frequent flyer programs. So, choosing a credit card provider affiliated with companies you like is essential.

How do they work?

Credit card points work in a relatively straightforward way:

You apply for a credit card that offers rewards points
You use the card to make purchases and start accumulating points
You redeem the points for things like travel, statement credits, merchandise and more.

However, how points really work is more complex. The value of the points you earn fluctuates based on the credit card you use, the rewards program it is associated with and the types of purchases you make.

How to earn points

You can earn points on a credit card in two main ways:

claiming a promotional sign-up offer that awards new customers bonus points
using your credit card to make eligible purchases.

Claiming credit card bonus points offers

The fastest way to earn points is to get approved for a credit card with a sign-up bonus. Credit card bonus point offers can range from 50,000 to 300,000 for premium cards. These cards are sometimes the better choices, but also tend to have annual fees and high income and spending requirements.

You’ll typically need to fulfil specific criteria to claim a credit card bonus point offer. This could be as simple as spending a minimum amount in the first 90 days after activating the card.

Earning points on purchases

The most common way to earn points is through purchases. The number of points you earn depends on the types of purchases you make. For example, some cards offer more points in specific spending categories, such as gas or dining. And some rewards programs restrict where you can earn points.

How many points you’ll earn comes down to the rewards structure, which the credit card provider should communicate clearly. Here are a few things you should understand:

Rewards rate. The number of points you’ll earn per dollar spent.
Base rate. The card’s standard rewards rate for all purchases. A regular rewards credit card accrues about one point per dollar you spend. However, some offer more or less. Generally, 0.75 points per dollar is on the lower end, and 2-3 points per dollar (2x or 3x) is higher.
Spending categories. Many credit cards have a few spending categories — such as dining, travel and groceries — for earning bonus points. So, if the base rate is 1x and a bonus category offers 3x, that means you’d get two extra points per dollar spent.
Spending and rewards limits. The number of points you can earn or the number of bonus points you can earn within a spending category may be limited.

When you choose a credit card, ensure the spending categories align with your typical monthly expenses. That way, you’ll earn the most points where you’re already spending money.

How to redeem points

Once you’ve earned enough points, you can decide how you want to redeem them. The value will depend on the redemption option you choose, and not all exchanges are equally rewarding.

Each credit card provider has their process for redeeming points, so it’s best to go directly to the website or use online banking. Generally, though:

Go to online banking to redeem points through your bank’s rewards program.
To redeem points through a third-party provider (such as Qantas, Virgin or Flybuys), go to the website and log in with your membership number.

Redemption categories usually centre around travel and transport, food, retail shopping, home goods, etc. The brands and products change often, so it’s worth regularly exploring what you can get with your points. Make a habit of checking these to get all the good deals.

How much is a point worth?

Understanding the real-world value of your points can be challenging because there’s no fixed points structure across the board, and it differs from one bank to the next, one day after another.

While there are plenty of ways to squeeze out the maximum value with every redemption, it can be helpful to think of credit card points as being worth about 1 cent each. Relying on approximates like this is a solid starting point when choosing how to redeem your points. If you can get this baseline value at least, you’ll know you aren’t claiming a less-than-ideal redemption.

However, if you want to ensure you’re really getting the most from your money, it’s worth doing the math to calculate the value of a point.

How to calculate the value of a point

You can use your online banking or membership login and navigate to the points calculator to determine the value of a points redemption. Or, you can rely on some basic math:

Divide the cash value by the number of points needed for the redemption item.

For instance, say you could fly from Sydney to Los Angeles one-way for 40,000 points. If you could book that flight for $1,000, then you can figure out the cash value of the points like this:

Cash value = $1,000 / 40,000 points
Cash value = $0.025 per point

So, in this example, each point would be worth about $0.025, or 2.5 cents per dollar.

When are credit card points worth it?

Credit card points can help you save money, depending on how you use the card that earns them.

Credit card points may be worthwhile if you:

travel often and want to save money on expenses
have a good credit score
can pay off your credit card in full every month
understand the terms and conditions of the rewards program
are happy to shop with affiliated partners for savings
have a card with a rewards structure that aligns with your budget and spending habits.

However, a basic credit card may be a better fit for you if you:

are not a frequent traveller
are still building your credit score
have missed monthly payments before
prefer to shop with brands not affiliated with the rewards program
think you’ll find yourself spending differently and possibly taking on debt to earn more points.

Look at all the options on the market and talk to your bank. If you choose to get a points credit card, pick the one that feels suitable for your current financial goals. You’ll have multiple credit cards throughout your lifetime — you only need to choose one based on what you need for the next few years.

The value of your credit card points depends on the bank or loyalty program affiliated with the card and how you plan to redeem them. You’re better off accruing more points than using them in small increments.

You can redeem your points through your credit card provider’s program, accessible via online banking. Banks have partnerships with specific brands, so check which companies you can shop with using points. If your card is affiliated with an airline, you could use your points on your next flight booking. Have your frequent flyer number ready at the time of booking.

No, credit card reward points are not taxable, and you don’t need to declare them on your annual return.

One popular strategy with points is to upgrade your credit card every couple of years to access the new bonus offers. Accruing points through everyday transactions takes years. While it’s still worthwhile, you’ll see the best value with points upwards of 150,000.

However, you should only consider this if your credit score is high, you’re not paying interest charges or missing bills, and you can confidently manage a credit card.