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How Do Credit Card Rewards Points Work?

Credit card rewards points are part of a tally system used in credit card payment incentive reimbursement programs.

Credit card issuing companies give cardholders various types of rewards when they use their cards to make purchases instead of traditional methods such as cash and checks.

Incentives vary, but include cash back, product or service reimbursement, vacation miles and holiday packages, as well as gift cards to stores that have partnerships with specific credit card issuers.

Some companies allow points to accumulate year-to-year, while others expire points after a specific date. Typically, cardholders can reimburse credit card rewards points over the phone, via email, through e-commerce sites and in brick-and-mortar retail establishments.

No matter the type of credit card reward points system, state and federal regulations require that credit card issuing companies provide their customers with written details about their rewards programs. These details must clearly outline terms for accumulation and reimbursement of points.

Typically, the rewarding of points occurs on the back end of credit card processing through the credit card issuer, also known as the issuing bank. This happens after a merchant and a global payment provider or network, such as Visa, MasterCard and Discover, process the sale.

Whether a merchant has one or several merchant accounts, he doesn’t need special credit card terminal or software programming to process credit cards that are part of reward points programs, as long as his equipment is set up to accept credit card payments from a global provider. The merchant processor he uses to handle his credit card processing for his merchant accounts also doesn’t need to do anything beyond process the types of credit cards he has decided to accept.

Merchants should make an extra effort to advise customers of the types of cards they accept for payments.

They should display the logos of these card types in store windows and on their cash wrap counters and registers. They should also list the types of cards on their websites and social network profiles. Although signage doesn’t speak to any specific credit card reward points programs, cardholders with rewards cards are more likely to use them when they know that a merchant accepts specific credit cards.

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