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How Do Travel Credit Cards Work
13 Sep 2019

How Do Travel Credit Cards Work? 3 Things to Know Before You Get One

The biggest perk offered by travel rewards credit cards is cheap or free travel but that’s not all you’ll get. Some of these cards include perks like TSA PreCheck or Global Entry.

On top of getting through airport security faster, you may get complimentary food and drinks, discounts on local attractions, and even access to airport lounges for those long stopovers. Those extras can keep money in your pocket, ease the stress of traveling, and save you a lot of time.

So how do travel credit cards work? Let’s look at 3 things you need to consider when choosing a travel rewards card.

Points or Miles Vary Between Cards

Travel cards either accumulate points or miles. They all refer to them the same way but that doesn’t mean you’re comparing apples-to-apples. The points on one card may hold more value than another.

For example, one travel card might give you $1 credit for every point you redeem while another may “cost” 1.5 or 2 points for the same credit. The same applies to cards that collect “miles.” A reward mile doesn’t always translate to a travel mile.

How Do You Redeem Your Rewards?

Another thing to consider when comparing travel cards is how you redeem the rewards you earn. There are two common options:

  • Statement credit
  • Rewards portal

Statement credit means the credit card company will issue the credit to your statement, reversing the cost of the reward. With rewards portals, you need to “buy” the rewards through the credit card company, usually through a website.

Statement credit rewards are the best option. With this type of reward, you can deal with a travel agent, buy direct from the airline or hotel, or use a travel site like Expedia. As long as the item is coded as being travel-related, the card company will let you apply your rewards toward the cost of your statement.

With a rewards portal, you have to choose your rewards from whatever selection the card company offers at any given time. They might have a good number of choices but it won’t be as flexible as choosing an option that suits you.

With statement credit, you can also shop around for the best deals so you use as few of your rewards points as possible. That’s not an option when you’re dealing with the card company.

You Need to Travel Enough to Make It Worthwhile

Before signing up for a travel rewards card, make sure you travel enough to make it worthwhile. If you have limited time to travel and will struggle to use the rewards you’re earning, you might be better off with another type of rewards card.

Most rewards cards have an expiry period on the points you earn so consider that as well. If you take a big trip every two years but your points expire after 18 months, you’re not going to be able to use them to the full advantage.

Some travel cards also include travel perks like free access to airport lounges, free appetizers or drinks, hotel room upgrades, and other similar bonuses. You often don’t need to cash in points to use these perks so if you don’t travel enough to take advantage of them, you’re missing out on even more of the benefits.

How Do Travel Credit Cards Work if You Don’t Travel?

Some travel rewards cards give you the option to use your points for cash-back rewards instead of travel rewards. This can be an alternative to get some benefit from your points but the cash-back value is usually a lot less than the travel value.

You’ll likely only get 50-80% of the value if you convert your points to cash versus claiming travel rewards. A dedicated cash-back rewards card typically gives you much better value.

Be Prepared to Pay an Annual Fee

Most of us are conditioned to avoid paying annual fees for credit cards. There are so many fee-free cards available that it might seem like you’re throwing your money away if you pay to own the card.

That may be true in some situations but not with travel rewards cards. Most of the best cards charge an annual fee but the value you get in return more than makes up for it.

A lot of travel cards offer sign-up bonuses when you get a new credit card. These bonuses can be in the 40,000 to 50,000 points range, which can translate to hundreds or even more than $1,000 of value when redeemed. If you were paying a $100 annual fee, for example, you could get more than ten times the value in return.

Some travel cards do offer no annual fee options but the sign-up bonuses tend to be a lot lower.

Other Things to Keep in Mind

Another thing to consider when comparing cards is whether the card is co-branded. Co-branded cards are affiliated with specific airlines, hotels, rental car companies, etc. You may only be able to redeem your points with those particular companies.

General-purpose cards will let you redeem your points with any company, depending on the specifics of the program. If the card uses a rewards portal, you’ll still be limited to what is being offered when you’re cashing in your points.

Bear in mind that it’s never a good idea to carry a balance on your credit card. Travel cards are no different. The money you’ll pay in interest charges will be more than the rewards you’ll earn by overspending so don’t get caught up in the moment if you receive a special offer that would mean spending money you don’t have.

It’s Not a Life-Long Commitment

Another thing to remember when researching how do travel credit cards work is that whatever choice you make doesn’t have to be permanent. If you sign up for a card and another better offer comes along in a few months, you can always switch.

You might lose the points you’ve collected, or have to use them on short notice, but if the rewards you get from the new card are good enough, it might be worth taking that hit.

Whether you’re looking for the best travel rewards card or any other type of rewards credit card, Bonsai Finance can help you find the best option for your needs. Check out our credit card reviews to see our current recommendations for the best cards.