FinanceBuzz Credit Card Rewards Valuation Model

Reward credit cards can provide huge value, but pinpointing exactly how much value can be a challenge. That's where we, the FinanceBuzz editors, come in. We've created a valuation formula to help you compare rewards across cards.

It's important to keep in mind that these are estimated values - your actual earnings will depend on how much you spend and in what categories.

How we calculate the values

Based on Census data and our internal polling, we've established average spend in categories where you're likely to spend significant money every year on your credit cards. We established different average spending models for different types of credit cards (travel, cash back, student, etc.) since the typical spending is likely to vary depending on the intended usage of the card.

As an example, here is the average spending we use to calculate the value of travel credit cards. Again, these are average values used for illustrative purposes. If your spending varies greatly from these estimates, you may want to create your calculation.

Category	Estimated annual household spend
Dining out	$3,500
Food delivery	$2,500
Groceries	$14,000
Phone, internet, and cable	$1,500
Streaming purchases	$500
Drugstore purchases	$1,000
Gas station purchases	$3,500
Airfare	$2,000
Hotels	$2,000
Other travel	$3,000
Everyday spending	$9,000

We plug these annual spend numbers into a formula that takes into account the reward rates for each spend category for the card. For travel rewards cards, we assign a value to each point or mile based on industry guidance.

To calculate a card's year-one value, we include the sign-up bonus value when there is one. For both year one and year two, we also subtract the annual fee when there is one. We also take into account any annual credits, anniversary credits, or special credits like free nights or statement credits.

Example calculation using a travel rewards credit card

We start with the FinanceBuzz category spending amounts and our bonus multipliers to get the annual points earned in each category. To walk through our calculations, we'll use a theoretical travel rewards credit card that offers 3X points on dining and travel spend. So, we take the spend in those categories and multiply it by three. You earn one point per dollar in other categories so those are simply multiplied by one. This example card also has a sign-up bonus of 60,000 points.

Category	Annual household spend	Multiplier	Annual points
Dining out	$3,500	3x	10,500
Food delivery	$2,500	3x	7,500
Groceries	$14,000	1x	14,000
Phone, internet, and cable	$1,500	1x	1,500
Streaming purchases	$500	1x	500
Drugstore purchases	$1,000	1x	1,000
Gas station purchases	$3,500	1x	3,500
Airfare	$2,000	5x	10,000
Hotels	$2,000	10x	20,000
Other travel	$3,000	3x	9,000
Everyday spending	$9,000	1x	9,000

To calculate the year-one value, we take the sum of the points earned from regular spending (86,500) + the sign-up bonus points (60,000).

86,500 + 60,000 = 146,500 points

We then multiply the points total by the value of a point. In the case of this theoretical card, points can be redeemed for 1.5 cents in the online travel portal so we use that valuation.

146,500 * $.015 = $2,197.50

We add the value of the statement credits (annual travel, DoorDash, and TSA PreCheck (divided by 5, since it lasts 5 years)) and subtract the annual fee to get a year one value of $2023.10.

$2197.50 + $300.00 + $60.00 + $15.60 - $550.00 = $2023.10

For year two, we do the same calculation, but don't include the sign-up bonus since you can only earn that in year one, bringing the year two value of $1123.10.

Additional value

We're calculating a baseline value for each card based on spend, annual fee, and sign-up bonus, but we also take additional value into consideration - and so should you. Most rewards cards provide additional value - sometimes thousands of dollars of value - with their other perks. If you're trying to decide if a card is right for you, take a look at these perks and figure out which ones you'll realistically use to get a fuller picture of the card's total value.

Things to consider:

• Statement credits: Some cards offer credits for travel, airline fees, food delivery, and rideshare fees, among other things. In the example above, the example card offers a $300 travel credit that we added into the totals for both year one and year two, as outlined above.
  
• Travel insurance: Trip delay, trip interruption, baggage, rental car insurance - they can add up if you use your card to book travel and run into any issues.
  
• Airport lounge access: If you travel just a few times a year, lounge access can make travel more enjoyable, plus you get to avoid paying the outrageous airport prices for food and drink, leaving more money in your wallet.
  
• Purchase protection: It's hard to put a value on peace of mind, but even if you don't use this insurance, it can be reassuring to know it's there if your big purchase gets stolen or breaks.
  
• Free checked bags: If you travel often, free checked bag fees can add up fast. Many airlines charge $30 each way, making this potentially worth $60 each round-trip flight.
  
• Much more! Take time to examine all the card benefits when comparing cards to fully understand how much value each will deliver to you.