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How Travel Credit Cards Work: A Beginner’s Guide to Travel Rewards
December 12, 2024
Welcome to Travel Rewards 101! If you’ve heard terms like “points,” “miles,” or “travel credit card” and felt a bit confused, you’re not alone. Travel credit cards can seem complicated at first, but once you understand the basics, they’re an incredibly useful tool to save money on vacations and trips. So, how do travel credit cards work? In simple terms, these cards reward you for spending by giving you points or miles that you can later use to get free or discounted travel. Imagine earning a free flight just by buying your groceries and paying your bills – that’s essentially what a good travel card can do over time.
In this beginner-friendly guide, we’ll walk through everything you need to know about travel credit cards: the types of travel cards out there, how you earn and use travel rewards, what kind of perks these cards offer, and how to make the most of them (even if you’re not a frequent flyer yet). By the end, you’ll have a solid grasp of how travel rewards work and feel confident in starting your own points-and-miles journey.
Let’s start with the basics and build up from there!
What Is a Travel Credit Card?
A travel credit card is a type of rewards credit card designed to give you benefits related to travel. Instead of cash back, these cards typically earn points or miles for your purchases. Over time, you can redeem those points/miles for travel expenses like flights, hotel stays, rental cars, or other travel experiences.
Travel cards often have partnerships with airlines or hotels, or they offer their own flexible rewards that can be used in various ways. The key idea is: use the card for your everyday spending, earn rewards, then travel for less (or even free) using those rewards.
Points vs. Miles – What’s the Difference?
These terms are often used interchangeably, but generally:
- Miles usually refer to airline loyalty program rewards. If you have an airline credit card (say a Delta or United card), you earn “miles” in that airline’s frequent flyer program. They function like points you can spend on flights with that airline (or its partners).
- Points is a broader term that can refer to any other kind of travel reward currency. Hotel cards earn points in hotel loyalty programs (e.g., Marriott points). Some travel cards earn bank points (e.g., Chase Ultimate Rewards, Amex Membership Rewards) which you can convert into various airlines or hotels or use through the bank’s travel booking site.
Functionally, they both are units of reward. 1 point or 1 mile doesn’t equal 1 physical mile you fly; it’s just a unit that has some value (often around $0.01 to $0.02 each on average, but it varies).
Types of Travel Credit Cards
There are a few main categories of travel credit cards:
- Airline Credit Cards: Co-branded with a specific airline (like American Airlines AAdvantage Card, etc.). Rewards: Earn miles with that airline for every purchase. Perks: Often include free checked bags, priority boarding, and discounts with that airline. Best for: People loyal to one airline or who live near an airline’s hub and use them often.
- Hotel Credit Cards: Co-branded with a hotel chain (Marriott Bonvoy cards, Hilton Honors cards, etc.). Rewards: Earn hotel points for that chain. Perks: Free nights (often an annual free night certificate), room upgrades, late checkout, complimentary status in the loyalty program (which can give you things like free breakfast). Best for: Those who favor a particular hotel brand when traveling.
- General Travel Rewards Cards: These are offered by banks (Chase Sapphire, Capital One Venture, Amex Gold/Platinum, etc.) and are not tied to a single travel brand. Rewards: Earn generic points (or miles) that you can use in multiple ways – often you can transfer these points to various airline/hotel partners or redeem through a travel portal for any flight/hotel. Perks: Often a mix of travel protections (travel insurance, lounge access on premium cards, credits for Global Entry/TSA PreCheck, etc.). Best for: People who want flexibility to use rewards across different airlines or hotels, and those who want a one-card-fits-all for travel perks.
- Travel Cashback (Fixed-Value) Cards: A bit of a hybrid, these cards (like Capital One Venture or Bank of America Travel Rewards) technically earn points, but you redeem them as statement credits for travel purchases (effectively “erasing” travel expenses). Some consider these travel cards because the rewards must be used for travel costs. Rewards: Earn points (often called “miles” by the marketing, e.g., Venture miles) at a flat rate, and redeem at a fixed rate (like 1 point = $0.01 toward travel). Perks: Usually simpler, fewer brand-specific perks, but sometimes things like no foreign transaction fees. Best for: People who want travel rewards without being locked into one airline/hotel, but also without dealing with complex point conversions – it’s a straightforward approach (spend, earn, then wipe out a travel charge with your points).
Each type has its pros and cons, but as a beginner, a general travel rewards card or a flexible travel cashback card is often a good start because of the versatility.
How Do You Earn Points or Miles?
Earning with a travel credit card comes down to a few main methods:
1. Sign-Up Bonus (Welcome Offer):
This is usually the fastest way to earn a chunk of points. Most travel cards offer a big bonus if you spend a certain amount in the first few months of opening the card. For example, a card might say “50,000 points after you spend $3,000 in the first 3 months.” That 50,000 points can often be worth several hundred dollars in travel. Pro tip: Don’t overspend just to get a bonus – plan to put your normal expenses (groceries, gas, bills) on the card to meet the goal.
2. Everyday Spending (Earn Rates):
Each card gives a certain number of points per dollar spent. It could be a flat rate (like 2x points on everything) or category-based (like 3x on travel and dining, 1x on other purchases). Choose a card that aligns with your spending habits for maximum earning. For instance, if you dine out a lot, a card that gives bonus points for restaurants will reward you faster.
3. Travel or Partner Purchases:
Airline and hotel cards often give extra miles when you buy from that airline or stay at that hotel chain. For example, using a Delta card to buy a Delta flight might earn you 2 miles per $1 on that purchase (in addition to the miles you’d earn as a flyer). Similarly, hotel cards give bonus points for booking rooms in their hotels.
4.Promotions and Loyalty Activities:
Sometimes there are limited-time promos (e.g., “earn extra points on groceries for the next 3 months”). Also, if your card is tied to a loyalty program, you might earn points through that program’s other partners (like shopping through an airline’s online mall, or using dining programs). As a beginner, these are extra — you can explore them as you get comfortable, but the bulk will come from the first three methods.
One thing to note: Points earned are a bonus for spending, but you should never spend more than you normally would just to earn points. The golden rule is to treat your credit card like a debit card – spend within your budget and pay the balance in full each month. That way, the points or miles you earn are truly free rewards (since if you pay interest on debt, that interest cost can outweigh the value of any rewards).
How Do You Redeem Points or Miles?
Earning is only half the fun – redeeming is where you get the payoff. Here’s how redemptions generally work:
Airline Card Redemptions:
If you have an airline credit card (earning miles for, say, United Airlines), those miles go into your United Mileage account. To use them, you log into your MileagePlus account and search for award flights. Flights will have a price in miles (e.g., 25,000 miles roundtrip domestic). You book by paying in miles (plus usually a small cash amount for taxes/fees). You can often use those miles not just on United but any partner airlines in the same alliance. Availability can vary – popular routes or dates might cost more miles or be limited, so some flexibility helps.
Hotel Card Redemptions:
Similar concept: your points live in your loyalty account (Marriott Bonvoy, Hilton Honors, etc.). You search for award nights on the hotel’s site. They’ll show prices in points. You can book rooms using your points. Many hotel programs have a perk like a 5th night free if you book 4 nights on points. Hotel point values vary widely, but if you travel during peak times, using points can save a lot of money on expensive nightly rates.
General Travel Card Redemptions: This depends on the card:
- Transferable Points: Cards like Chase Sapphire Preferred or Amex Gold allow you to transfer points to various airline/hotel programs. For example, you could move your Chase points to United miles or Hyatt hotel points. Once transferred, you use them as that program’s currency (book flights via United, etc.). This requires learning the partner programs but can yield great value if, say, one airline has a sweet spot award chart for fewer miles.
- Travel Portal Booking: The bank might have a travel site (like an online agency) where you can book flights or hotels using your points. For instance, Chase lets you use points in their portal (1 point might equal 1.25 cents or more if you have certain cards). This is straightforward: you search and pay with points instead of cash.
- Erase Travel (Fixed-Value): Cards like Capital One Venture let you charge your travel to the card (flights, hotel, even things like Airbnb or train tickets) and later go to your account and “erase” that purchase by redeeming points. For example, you spent $500 on a flight, which appears on your statement; you use 50,000 points to get a $500 credit, effectively paying it off with your points. This is one of the easiest redemption methods as it works with any travel expense, any time, no blackouts.
Other Redemptions:
Some travel cards allow non-travel redemptions: gift cards, merchandise, or even cash back. However, these usually give a lower value per point. As a Travel Rewards 101 tip: You’ll typically get the best value using your travel points for actual travel. For example, using airline miles for flights usually beats using those miles for a magazine subscription (which is often an option – but not a good deal).
As a beginner, an easy way to dip your toes is using a general travel card’s portal or erase feature, because it’s similar to using a cash-back card – very simple. As you get more comfortable, you might experiment with transferring points to airline programs for potentially higher value. There are lots of blogs and resources (like The Points Guy, etc.) that share “best ways to use X points” once you’re ready to optimize. But you don’t need to start there; even using points at average value for economy flights or hotel stays you’d otherwise pay for is a win!
Common Travel Credit Card Benefits
Travel credit cards often come with a suite of additional benefits beyond earning points. It’s important to know these, because they add value (and can justify an annual fee if there is one).
Here are some common perks:
No Foreign Transaction Fees:
Most travel cards waive foreign transaction fees, which means if you use the card abroad, you won’t pay the typical 3% extra fee on each purchase. This is a must-have for international travel.
Travel Insurance Protections:
Many cards offer built-in travel insurance coverage. This can include trip cancellation/interruption insurance (get reimbursed if your trip is cancelled or cut short due to covered reasons like illness or weather), trip delay coverage (if your flight is delayed overnight, they pay for your hotel/meals up to a certain amount), lost luggage reimbursement, and travel accident insurance. These protections can save you hundreds if something goes wrong on a trip – and you get them automatically by using the card to pay for the travel.
Rental Car Insurance:
Quite a few travel cards offer auto rental collision damage waiver, which means if you rent a car using the card, you can often decline the rental agency’s collision insurance because your credit card covers damage/theft (usually secondary to your personal insurance, but some premium cards offer primary coverage). Great for road trip peace of mind.
Airport Lounge Access:
Premium travel cards (and some airline cards) may include airport lounge access memberships. For example, the Platinum Card from Amex gives access to Centurion Lounges, Delta SkyClubs (when flying Delta), and Priority Pass lounges. Lounge access means free food, drinks, and a comfortable space at airports – a nice perk if you travel a lot. Even mid-tier cards might give a couple of free lounge passes per year.
Global Entry/TSA PreCheck Credit:
A common perk is a statement credit to cover your application fee for TSA Pre✓ or Global Entry (for faster security/immigration at airports). Typically, every 4-5 years the card will rebate that ~$85-100 fee. It’s a small but handy benefit for travelers.
Annual Travel Credits:
Some cards give an annual travel credit – e.g., $300 that automatically refunds travel purchases each year. This effectively offsets part of the annual fee and makes using the card for travel even more rewarding.
Elite Status or Upgrades:
Certain hotel cards might give you mid-tier elite status in the loyalty program (e.g., automatic Marriott Gold status) which can get you room upgrades and late checkout. Airline cards might offer chances for priority boarding or upgrades (though true elite status with airlines usually comes from flying a lot, not the card alone, but the card can help).
Companion Tickets:
Some airline cards (usually premium ones) offer a companion fare certificate each year – basically, a buy-one-get-one-free (or discounted) plane ticket. E.g., buy one ticket, get your companion’s ticket for just taxes.
Not every card has all these perks; they vary. Typically, the higher the annual fee, the more perks. As a beginner, decide what perks matter to you. If you rarely rent cars, that perk might not sway you. If you always check bags, an airline card that covers bag fees (often worth ~$30 per flight) could be immediately valuable.
One particularly valuable aspect for beginners is the travel insurance protections many cards have, because you might not think about it until something happens – having your card cover a $500 flight delay expense is a huge relief. Be sure to read your card’s benefits guide (most issuers provide a document or webpage listing all benefits). You might be pleasantly surprised at the safety nets you have when you travel.
Getting Started: Tips for Beginners
Now that you know what travel cards are, how you earn and use rewards, and the perks, here are some tips to get started on the right foot:
Choose the Right Starter Card:
If you’re new, consider a general travel rewards card with a moderate annual fee or no fee. For example, the Chase Sapphire Preferred (annual fee around $95) is often recommended as a great starter travel card because it has flexible points and good travel coverage. If you prefer no fee, something like the Discover it Miles or a no-fee airline card could be an option, though no-fee travel cards have fewer perks. Pick a card that matches your current travel frequency and comfort level.
Meet the Sign-Up Bonus Responsibly:
Those initial bonuses are tempting – who wouldn’t want tens of thousands of points? Make a plan for how you’ll spend enough to earn it without stretching your finances. This might mean using the card for all your groceries, gas, utility bills, etc. Possibly time a large necessary purchase (like new tires for the car or a laptop for work) during the bonus period. Pro tip: some people prepay certain bills or buy gift cards for future shopping to reach a bonus threshold – only do this within reason and if it makes sense for you.
Pay Your Bill in Full:
This is worth repeating – do not carry a balance if you can help it. Travel cards often have higher interest rates, and paying interest will quickly erode the value of any rewards. The true “win” with rewards cards comes when you never pay interest or late fees. Set up autopay or reminders to pay the statement balance each month.
Get to Know Your Card’s Bonus Categories:
Once you have the card, remember what spends earn extra. If your card gives 3x points on dining, use it when you eat out or order in. If it gives 5x on travel booked through their portal, consider booking your rental car through the card’s site. Maximizing these accelerators will help you earn rewards faster. You could keep a small sticky note in your wallet or use the card issuer’s mobile app to recall the categories. This becomes second nature after a while.
Track Your Points and Plan Redemptions:
After a few months, you’ll see your points adding up. It’s motivating to watch the balance grow and start imagining where you can go. Create an online account with the card’s rewards program (if it’s an airline card, your airline loyalty account; if bank points, the bank’s rewards site). Take a peek at what, say, 50,000 points can do. Maybe 40,000 points = a roundtrip flight to the Caribbean, or 60,000 points = 3 nights at a nice hotel. Having a goal in mind can focus your efforts. Also note if points have expiration (most don’t expire as long as your account is open and in good standing, but some airline miles might if no activity in 18-24 months – the solution is usually just use the card occasionally or redeem something small to reset the clock).
Learn Basic Program Rules:
If you have a specific program (like United miles or Marriott points), it’s worth learning a bit about how to use those. For example, airlines often have an online award chart or at least a search engine that shows you where you can go for how many miles. You might discover that flying mid-week requires fewer miles than weekends, or that booking far in advance (or very last minute) could impact availability. Don’t get overwhelmed; just familiarize yourself so you can better plan. If it’s a flexible card, learn which airlines you can transfer to or how to use their travel portal effectively.
Use Tools to Your Advantage:
Managing one card isn’t hard, but if you end up with a couple, consider tools and apps. We’ve mentioned Kudos – it’s a browser extension that, when you’re about to pay online, can suggest the best card to use. This is great for travel cards that might have hidden benefits. For example, if one of your cards has trip delay insurance, Kudos might remind you to use that card for buying a flight to get the coverage, even if another card would earn more points. It basically helps you remember all those things you learned without having to keep it all in your head. Other apps like Mint or Personal Finance apps can track your spending per category, which can help you match your spending to the right reward card.
Plan Your First Reward Redemption:
Once you’ve accumulated enough points for something, go ahead and use them! The sooner you redeem for a valuable experience, the sooner you see the real benefit, and the more excited you’ll be to continue. Maybe it’s a free flight to visit a friend or a free hotel night on your next weekend getaway. Using rewards can be a bit addictive (in a good way) – it motivates you to keep up the strategy. Also, points and miles can devalue over time (programs can change rates), so it’s wise not to hoard forever. Earn ‘em and burn ‘em, as they say, for memories and savings.
A Quick Example: Earning and Redeeming
To tie it all together, let’s run through a hypothetical:
You get the Wanderlust Travel Card (fictional name), which offers 60,000 points if you spend $4,000 in 3 months. It has a $95 annual fee. It gives 2x points on travel and dining, 1x on other purchases.
- Month 1-3: You switch all your spending to this card – groceries ($600/mo), dining ($200/mo, gets 2x), gas ($150/mo), some shopping and bills ($300/mo). That’s about $1,250/mo. In 3 months, you spend $3,750. Maybe to hit $4,000, you prepay $250 on your internet and phone bill (so you have a credit). Now you hit $4k – yay, you earned the 60,000 bonus points! Plus, you earned regular points on that $4k. Let’s say out of $4k, $600 was dining/travel (2x) and $3,400 was 1x. That’s $6002 + $3,4001 = 1,200 + 3,400 = 4,600 points from spending. Total points now ~64,600 points.
- Plan a Trip: You check the card’s rewards site. 64,600 points could get you, for example, $646 in travel via their portal (if 1 point = 1¢) or maybe you transfer 60,000 to an airline and book a roundtrip to Europe in off-peak (which might normally cost $800+). You decide to use 50,000 points for two domestic roundtrip flights (25k each) for a vacation with your spouse – those tickets would have cost $500 total out of pocket. You book through the airline by transferring points from your bank’s program to the airline, then redeeming. It costs $11 each in taxes, so $22 cash, but that’s it. You’ve just leveraged your credit card to save $500 on flights.
- Ongoing: You keep using the card for dining and travel purchases to get 2x (maybe you’ll transfer points to a hotel program next time for a free hotel stay). Perhaps after a year, you consider adding a no-fee cash-back card for other purchases to complement your travel card (because that one gives only 1x on other spend, maybe a 2% cash back card would double your rewards on non-travel spend). Now you’re slowly entering the intermediate strategy phase. But for now, you’ve successfully earned and used travel rewards!
Conclusion
Travel credit cards are a fantastic tool to unlock value from your everyday spending. By understanding how they work – earning points/miles through spending and bonuses, and redeeming those rewards for trips – you can turn credit card usage into memorable travel experiences. It might feel like a lot of info at first, but take it step by step. Many beginners start by getting one good travel card, using it for all purchases, and before they know it, they’ve got enough points for a weekend getaway flight or a couple of free hotel nights.
The important things to remember are: choose a card that fits you, always pay it off, and don’t let the rewards lure you into spending more than you normally would. If you do that, the banks are essentially paying you in free travel, instead of you paying them interest – that’s the goal!
With time, you’ll learn more tricks and maybe try new cards or strategies. The world of points and miles can get quite deep, but you don’t have to be an expert to benefit. Even casual use of a travel credit card can save you a nice chunk on your next vacation. So go ahead, dip your toes in. Soon enough, you might be lounging in an airline seat you got on points, thinking, “Wow, this really works!” Safe travels and happy earning!
FAQs
Will opening a travel credit card hurt my credit score?
Opening any new credit card can cause a small, temporary dip in your credit score due to the hard inquiry and the new account. However, if used responsibly, a new credit card can actually help build your credit over time by increasing your total available credit (which can lower your credit utilization ratio, a factor in your score) and adding to your credit history. The key is to keep your spending in check and pay on time. One travel card opened won’t significantly hurt you; many people with excellent credit have multiple cards. Just avoid applying for too many cards in a short period, as multiple inquiries can add up. In short, a small short-term dip may happen, but long-term, responsible use of a travel card can be neutral or even positive for your credit score.
Do I have to pay an annual fee to get a good travel credit card?
Not necessarily. While many of the most powerful travel cards have annual fees (which pay for big perks and higher rewards), there are no-annual-fee travel cards too. These tend to have more basic rewards. For example, no-fee airline cards exist but typically with lower bonuses and fewer perks than their fee-based counterparts. No-fee general travel cards (like some that earn 1.5x on everything toward travel) can still be valuable for beginners or infrequent travelers. If you travel often, a card with a fee around $95 often provides enough perks (free bags, better earning rates, higher bonus) to be worth it. Always do the math: if the benefits you’ll use exceed the fee, then it’s worth paying. If you’re unsure, start with a no-fee card; you can always upgrade later. Remember, you can also downgrade many cards to a no-fee version if you find the fee isn’t worth it after a year or two.
What is the best way to use points: flights, hotels, or something else?
The best use of points can vary depending on your travel goals. Generally, flights and hotels yield the best value for travel points. If you have airline miles, using them for flights (especially expensive international or last-minute flights) often gives you more cents per point value compared to things like merchandise. Hotel points used for hotel nights during peak travel dates can save you a lot as well. Some flexible points can be used for other things like car rentals or activities via travel portals – those can be good if you’re flush with points and want to cover all travel costs. The least valuable redemptions are usually gift cards or shopping with points – those tend to give a poor exchange rate. As a rule of thumb: use airline miles for flights, hotel points for hotel stays, and flexible bank points for whichever travel need you have once you’ve compared your options. If you ever feel overwhelmed deciding, there are many online calculators and communities where people share the best uses for specific points. But for a beginner, picking a flight or hotel redemption for a trip you want to take is a great start – you’ll likely get solid value and the joy of a cheaper trip!
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