Why Merchant Category Codes Matter for Rewards

Merchant category codes, sometimes called MCC codes or merchant codes, classify merchants based on the products or services sold. Credit card issuers use these codes to determine how to categorize your transactions for rewards purposes.

It can get complicated, though, when a merchant sells or provides multiple types of products and services. Understanding how MCC codes work can help you maximize your rewards earning and redemption.

What Is a Merchant Category Code?

Merchant category codes are four-digit numbers that payment networks such as Visa and Mastercard assign to individual businesses. “Every merchant is classified under a certain merchant category code,” says Suneera Madhani, founder and CEO of Fattmerchant, a payment technology platform, “which tells the card companies what kind of service is being charged to the card.”

While each payment network has its own set of merchant codes, they’re generally standardized across the board based on the general merchant category code list provided by the IRS.

When you make a purchase with your credit card, the transaction is categorized based on its merchant code when it’s reported to your credit card issuer. The bank or credit union then uses the code to determine which rewards rate you earn on the purchase.

For example, if you purchase a set of new shoes at Famous Footwear or Foot Locker, it would likely fall under shoe stores with an MCC code of 5661, according to the IRS list.

In the case where a merchant participates in more than one type of business, its MCC code will be based on its primary line of business.

[Read: Best Rewards Credit Cards.]

It’s not an exact science, however. For example, if you do a merchant category code lookup for Walmart locations in your area using Visa’s supplier locator, it could return different MCC codes for different stores. This means that you could visit one Walmart location with your Visa credit card and have your purchase coded as a grocery or supermarket transaction, and visit another and get it coded as a discount store.

With Discover, however, Walmart and Target are specifically excluded from the grocery store category, regardless of where you shop.

Why Merchant Category Codes Matter

While rewards are the primary way MCC codes can affect you as a cardholder, they’re not the only way. Here’s why it’s important to understand how they work and how to make the most of that knowledge.

Rewards rates. On credit cards that offer a flat rewards rate on everything, MCC codes don’t really matter. However, if your card offers a tiered or rotating bonus rewards system, it plays a significant role in how much you earn on your everyday spending.

Most MCC codes likely won’t affect the rewards rate you’re earning on your credit cards. But with common bonus rewards categories like groceries, gas, travel and dining, you could be earning a lower rewards rate without knowing it based on where you’re shopping.

For example, a lot of credit cards offer bonus rewards on purchases made at grocery stores and supermarkets. But while you can buy groceries at retailers such as Walmart or Target, they’re not typically classified as grocery stores or supermarkets. (Though in some cases with some payment networks, it can happen.)

Instead, the rewards may be coded as discount stores and wholesale clubs. So if you’re using a card that earns bonus rewards at grocery stores, you may end up disappointed if you’re trying to get the bonus rate at multipurpose retailers of those kind.

And if you’ve been using a card like that at the wrong merchant for a while, you may have already left a lot of money on the table without knowing it.

[Read: Best Balance Transfer Credit Cards.]

Another thing to consider is that merchants physically grouped together may code similarly. For example, a restaurant inside a hotel may be assigned a hotel-related merchant category code. The same goes for a gas station that is part of a grocery or big-box store. Instead of coding it as gas, the purchase may receive the MCC code of the store. So it’s important to think about these nuances as you decide which cards to use to maximize your rewards.

And remember, it’s about the merchant and not the item. “If you have rewards on clothing but purchase a souvenir T-shirt at an airport gift shop,” says Madhani, “then you may not get the rewards since the store is categorized as a gift shop and not a clothing retailer.”

Statement credits. Some credit cards offer statement credits on certain purchases you make. With some cards, the credit may be tied to a specific merchant or type of transaction, such as airline incidental fees or an application fee for TSA Precheck or Global Entry.

But other cards may offer credits on a more broad category like general travel. In this case, you may want to be aware of how your purchases are coded to make sure you get the credit for the transactions you want.

For example, the Chase Sapphire Reserve offers a $300 annual travel credit, which gets triggered by a variety of traditional travel-related purchases such as flights or hotel stays, plus things like parking lots and garages, buses and taxis. If you want to save your credit for a trip you’re planning, it may be wise to avoid using the card on those smaller purchases until after you’ve maxed out the benefit.

Rewards redemption. With a handful of general travel credit cards, you can redeem your points or miles by making a travel-related purchase with the card and using your rewards to get a statement credit against the purchase.

What counts as a travel purchase can vary by card, so understanding how MCC codes work can help you maximize your rewards.

For example, let’s say you’re planning a trip with your family to Disneyland. If you purchase entry tickets at the park or online through Disney’s website, it would likely be categorized as an amusement park instead of travel, and you wouldn’t be able to redeem your rewards for the transaction.

If, however, you purchase your entry tickets through a third-party travel agency, that would be considered a travel expense, allowing you to redeem your rewards and cover the cost.

How to Look Up Merchant Category Codes

If you have a rewards credit card and want to make sure you can maximize your rewards and other benefits the card offers, you may want to see how a purchase or redemption codes ahead of time.

Unfortunately, it’s not always straightforward. While Visa offers a merchant category code lookup tool with specific merchants, Mastercard, American Express and Discover don’t offer the same service.

“If you’re concerned about the MCC of a specific vendor, you could try a small test transaction and see how it is categorized before making it part of your regular rewards-earning plan,” says John Ganotis, founder of CreditCardInsider.com.

[Read: Best Cash Back Credit Cards.]

While this doesn’t help with your first purchase, it can give you an idea of how subsequent purchases will be treated.

What Happens if a Purchase Doesn’t Code Correctly

Because the payment networks determine merchant category codes — and not the credit card issuers themselves — you don’t have a lot of recourse if a purchase you made didn’t code how you thought it should’ve and you didn’t earn bonus rewards.

“Most of the time, rewards program agreements include language saying that reward categories are based on MCCs and can’t be changed after if the MCC does not seem accurate for the business,” says Ganotis.

That said, you can still contact your card issuer to see if it’s willing to make an exception. While there is no obligation to do so, some issuers do it anyway as a courtesy to its customers. As with most things, it doesn’t hurt to ask.

The caveat is that bonus rewards earning isn’t always clear on your statement. Some issuers break down the numbers for each transaction, while others just give you a summary of what you earned for the entire statement period.

If you can’t see exactly how many points or miles you’ve earned on a purchase, it can help to at least see how the transaction was categorized.

“Usually, you can see the category of each transaction on your credit card issuer’s website, mobile app or on a paper statement,” Ganotis says. “You will not usually see the exact MCC, but the issuer may list a broader category like ‘travel’ or ‘restaurants’ instead.”

If you have a question about a particular transaction, don’t hesitate to call the number on the back of your card to get more clarity. And while it may be hard to accept that you may not get the rewards you deserve every time, combing through statements and disputing coding may not be worth the effort unless you’re concerned about major purchases. Instead, look for other ways to maximize your rewards as best as you can.

More from U.S. News

How Credit Card Issuers Define Travel

How to Upgrade or Downgrade Your Credit Card

Are Credit Card Rewards Worth It?

Why Merchant Category Codes Matter for Rewards originally appeared on usnews.com

Related Categories:

Latest News

More from WTOP

Log in to your WTOP account for notifications and alerts customized for you.

Sign up