The Basics of Points and Miles

If you’ve clicked this post, chances are you (1) want to go on a Disney trip, (2) have heard travelers talk about “points” or “miles”, and (3) need just to understand how these points and miles work. Maybe you even have some points, but you’re like my dad and have just converted them into piles of Barnes and Noble gift cards.

In this post, I cover what points and miles are, and how to get them. Future posts will cover precisely how to use them, but the blog already has several posts that discuss uses of points. Knowing how to use other credit card perks can be essential too. Just see how I saved $2,025.09, or 37% of my anticipated hotel costs on one trip, in one day just by opening and using a new card. Or, see a post about how a family of four can get a five-day trip for (mostly) free.

Quickly, what are “points,” and how are they different from “miles”?

For our purposes, we’re just going to classify miles as a type of point. Precisely, miles are points in airline loyalty programs that are redeemable for flights or upgrades. So what are points?

Points are assets given to you—a user—in exchange for using a product, brand, or service, sometimes as part of a loyalty program, and redeemable for future goods or services.

Confused? Here’s an everyday example of points that most people are familiar with. If you register with Starbucks Rewards, Starbucks will give you two “Stars” for each $1 you spend at Starbucks. Once you have 125 stars, you can redeem them for a free drink or food item. The “stars” are Starbucks points.

Miles are simply points issued by airlines. Some airlines don’t use the terminology “miles.” British Airways, for example, calls their points “Avios.”

How do credit cards play into this?

Credit cards are a gigantic part of understanding points and miles. All the major issuers of credit cards have cards that allow you to earn points by spending on them. In the simplest arrangement, each dollar you spend earns you 1 point. So what use are these points from credit card issuers?

It depends, but basically the credit card company will issue you one of three types of points: partner points, cash back, and issuer points. Let’s cover each of these.

1. Partner Points

Some credit card companies partner with other companies—usually airlines or hotels—to issue you points in the form of their partner’s currency. For example, when you use the Citi AAdvantage line of cards, you earn American Airlines AAdvantage miles. The Marriott Rewards Premier Visa Card is issued by Chase but earns Marriott rewards points, redeemable for nights at Marriott hotels.

2. Cash back

 Cash back is the simplest type of credit card point and often suggested as a good place for beginners to start. With a cash back card, your points typically represent cents, and as you accrue them you convert them either to (1) a statement credit to help you pay your credit card bill or (2) a gift card, sometimes with a bonus (so $20 gets a $25 gift card). Some cash back cards allow you to spend the cash directly, avoiding requesting a statement credit—you can spend Discover cash back directly at Amazon, for example. There are several cards that grant 2% cash back on all purchases.

3. Issuer Points

These are the type of points issued by the card issuer. These tend to be the most popular and valuable points because of their flexibility. You can typically redeem issuer points in any of three ways: (1) as cashback, (2) by spending them in a portal for experiences or travel, (3) by transferring them to partner hotels and airlines. At Chase these are Ultimate Rewards points, at Citi they’re ThankYou points, and at American Express they’re Membership Rewards points.

Anything else to know about using these cards?

Yes, two things.

1. Bonus Categories

Many cards have a 1 point per dollar spent baseline with special categories that earn more than 1 point per dollar. These can be 2x, 3x, or even 5x points per dollar spent in special categories. For example, the Chase Sapphire Reserve earns 3x Ultimate Rewards points per dollar spent on travel or dining. The Chase Freedom has categories that change every three months where you can earn 5x Ultimate Rewards per dollar spent.

2. Point Stacking / Multi-Dipping

It’s important to understand that credit cards allow you the opportunity to “double-“ or “triple-dip” to earn points. For example, if you buy a flight on American Airlines on Expedia with your Chase Sapphire Reserve, you’ll earn AAdvantage miles for the flight, Expedia points for purchasing through Expedia, and points for purchasing travel on your Chase Sapphire Reserve. Some crazy examples of this can be found on this 2014 post from the Frequent Miler.

I know you haven’t covered redeeming points yet, but you mentioned 2% cash back. So I have to spend $10,000 to get a $200 flight? This doesn’t sound like it’ll get me very far.

The best way to get points is not through your everyday spending. That will get you some points, but the vast majority of points come from sign-up bonuses.

Earlier this year, the internet lost it when Chase unveiled the Chase Sapphire Reserve Card, which came with a 100,000 point sign-up bonus if you spent $4000 in the first three months of having the card. Sign-up bonuses tend to be straightforward. You sign up for the card, use it to spend more than a fixed amount in the first X months, and you get points. There are some nuances—you might not qualify for the bonus, you might need to use a specific link to get it, you might not get approved for the card, you might miscalculate the spending—but that is the short of it.

We’re pretty deep, how about an example before we go?

Sure. You open a new Chase Sapphire Reserve and use it to buy a $4,500 Disney vacation package in the first month. For that, you’ll get the 100,000 sign-up bonus and 13,500 points from spending, at 3x per dollar for travel. You also put a $6 lunch at Chipotle on the card, and you’re up to 113,518 points (because dining is also 3x).

With those 113,518 UR points, you could book over $1700 in travel (flights, hotels, rental cars, and some activities) through the Chase travel portal. Or you could transfer them to Singapore Airlines’ loyalty program and fly one of the world’s premier first class products from New York to Singapore.