How Merchant Category Codes (MCCs) Impact Credit Card Rewards

Some rewards credit cards offer an increased earn rate on spending in specific categories. For example, you might get 5% cash back for every dollar spent on groceries, or two points per dollar spent on gas. These bonus rewards mean more value for your spending, but have you ever wondered how credit card companies can tell the difference between your purchases?

If you were to look behind the scenes, you’d see that each merchants is assigned a category code, often known simply as an MCC. Exploring how MCCs work can help you understand how your rewards are calculated — and how to maximize them.

» MORE: An intro to rewards credit cards

What is a merchant category code (MCC)?

An MCC is a four-digit number assigned to a business by a credit card network (like Visa, Mastercard, and American Express). The MCC classifies merchants by category, which is important because purchases in different categories may results in different rewards rates.

As a consumer, knowing about merchant categories can help you maximize your credit card rewards. For example, some grocery stores sell big-ticket electronics, but those purchases might still be coded as groceries, If you have a cash-back card that earns bonus points on groceries, using it could mean earning more cash back than if you made the same purchase at another retailer.

While most merchants’ categories are fairly clear, a few may surprise you. For example, Costco is not considered a grocery store and is instead coded as a wholesale store. That means grocery purchases at Costco won’t earn the grocery rewards rate, if your card offers one.

MCCs work the same for cash-back, general rewards and travel credit cards. Generally speaking, it’s a good idea to use the credit card that gives you the highest earn rate for the merchant category you’re shopping.

Common rewards categories and their MCC codes

There are hundreds of merchant category codes, and some of them are very specific. For example, there are MCCs for attorneys, duty-free stores, boat dealers, and even wig shops. There are some of the most common categories and their associated MCCs.

When companies register to process credit card transactions, they’re asked to fill out information about the goods and services they provide. Based on these details, the credit card network assigns them the most appropriate MCC. In most cases, retailers fall under general MCCs, but some airlines and hotels have their own individual MCCs.

From a consumer perspective, the actual four-digit MCC is of little relevance since it’s processed on the back end by the credit card networks. All you need to worry about are the categories that each merchant falls into, since that’s what affects the rewards you’ll earn.

» MORE: How stacking credit card rewards could save you big

Do credit card networks categorize businesses the same way?

Unfortunately, no. While major networks like Visa, Mastercard, and American Express appear to use the same merchant category codes, they sometimes categorize merchants differently.

For example, Walmart might be considered a grocery store by one issuer and not the others, and it might depend on whether it’s a Superstore or a regular Walmart.

To further complicate things, the networks might combine categories differently when advertising earning rates. For example, some cards offer bonus rewards on a combined “food and drinks” category that includes grocery stores, restaurants, and even food-delivery services.

Other cards separate grocery stores from restaurants and offer different rewards on those purchases.

Another example is taxi and rideshare spending, which some cards consider transportation and others list as travel.

Many purchases fall fairly clearly into particular merchant categories like restaurants or streaming services. That said, it’s a good idea to check your statements to see the rewards you’ve actually earned on a given purchase. This can help you learn how your card categorizes spending, especially at more ambiguous retailers, such as big-box stores or online retailers.