What to Consider Before Getting a Travel Credit Card
According to a recent survey conducted by Harris Poll for NerdWallet, approximately 68 percent of adults in the U.S. have travel credit cards. Those who don’t are missing out on a combined $22 billion in free travel every year. After annual fees are taken into account, the average savings on travel is about $900 during the first year. Going forward, cardholders save around $280 per year.
Having said that, travel cards don’t make sense for everybody. Keep reading to find out whether getting one is right for you.
Consider Your Credit Score
Maintaining a good credit score even has bearing on your travel plans.
Many creditors have their own guidelines, but in general, the scoring range is as follows:
- 750 or higher — Excellent
- 700 to 749 — Good
- 650 to 699 — Fair
- 649 or below — Poor
The creditors who offer travel cards seem to be more flexible than many others. Some now approve customers with credit scores as low as the mid-600s.
If your credit history is less than stellar, it will be tough to qualify for an elite card. Most require a score of at least 700. Cards at this tier offer flexible rewards that you can use for any travel purchase.
However, you’re likely to be approved for cards issued by the major airlines and hotels. The perks may not be as impressive, but you will still see substantial savings if you carefully plan your trips and use the cards responsibly.
Beware of overspending or accumulating a mountain of debt just to get the travel rewards. If you can’t pay off your balance within a couple of months after taking your dream vacation, postpone the trip for a bit and keep saving for it.
Consider How Much You Travel
It pays to do the math before you open a new card.
Do a thoughtful evaluation of how much you spend on travel each year. What could you potentially save by taking advantage of the rewards? Consider which specific perks you would use. Examples include conveniences for international travel and VIP access to premium airport lounges.
Then, take the credit card’s annual membership fee into account. If you come out ahead, it’s a good idea to open a travel card.
Choosing the Right Travel Card
The first decision is whether to open a co-branded card or a general travel card.
Co-branded cards are issued by airlines and hotel chains. In most cases, you can only use them with the issuing companies. You can expect perks like priority boarding, waived baggage fees, bonus amenities, and upgraded hotel rooms. Co-branded cards make sense if you’re 100 percent loyal to your favorite travel brands.
The reward points on general cards can be applied to any approved travel expense. You can also redeem them for direct credits to your account, but their travel value is significantly greater.
Generally speaking, the cards with larger annual fees pay the highest rewards. Earn rate refers to the amount of points, miles, or cash back awarded for every dollar spent. Burn rate is the value of those earned rewards when you redeem them. The industry standard is one cent, but some cards offer more or less.
Calculate the value of rewards at redemption by multiplying the earn and burn rates. The average is somewhere around 1.5 percent for each dollar spent.
Some perks that you might consider are concierge services and emergency assistance. A card may provide coverage for lost luggage, travel delays, or accidents. Again, weigh the rewards against the credit card fees.
Make sure that the card you choose is widely accepted by merchants, especially if you do a lot of international traveling.
Avoiding Travel Credit Card Mistakes
The benefits of using a travel card usually outweigh the downsides, but here are some pitfalls to watch for.
Chasing a sign-up bonus
Sign-up bonuses can be tricky. Some result in a free, first-class, round-trip flight, but others result in a high credit card balance that’s tough to pay down.
Let’s say that a creditor is offering outrageous travel bonuses if you spend $3,000 on the card within 90 days of enrollment. That’s a sweet deal if you can spend that much and still maintain a zero balance, but it makes no sense to chase a bonus while your debt is mounting. The interest might offset the promotional reward.
Letting rewards expire or go to waste
Why pay fees for benefits you’ll never use? With most cards, you use them or lose them.
Read all the fine print. You may come across amenities you didn’t even know you were entitled to. Set alerts well in advance of reward expiration dates. You can sometimes keep rewards current by charging a small amount on the card or redeeming a few points.
Booking trips through the wrong portal
Is it cheaper to book flights through the airline or your travel credit card? It changes all the time, so check prices on both portals before you book a trip. If the prices are higher on your credit card’s website, make sure that the rewards you earn are worth the additional cost.
Picking a co-branded card that doesn’t match up with your preferences
A brand that you don’t normally choose might have outstanding perks or a terrific sign-up offer. Even so, pass on it. Fans of certain airlines or hotel chains have a tough time making the switch.
Also, when you stick with the companies you like, you’ll get to know their rules, tiers, and limits. You’ll learn how to work the system and pick up tips for finding the best values.
It’s a lot to absorb but doing some research ahead of time could make your travels more affordable, convenient, and rewarding.