How Do Travel Credit Cards Work?

A travel credit card is a type of rewards card that allows you to earn points and miles for certain purchases. You can usually earn rewards on everyday spending such as groceries, gas, and dining. Then, you can redeem them for travel-related expenses, like flights, hotels, and rental car reservations.

The more you spend with your card, the more rewards you can collect and put towards your travel needs. Travel credit cards often offer rewards in the form of miles or points. Both types of currencies are redeemable for travel and other perks, but miles are generally used in the context of airline rewards, while points are often associated with hotels.

Additionally, many travel cards offer other perks, such as free entrance to airport lounges, global entry and TSA PreCheck, no foreign transaction fees, and trip cancellation insurance.¹

Travel credit cards use a rewards system where you earn points or miles and redeem them for travel. Some rewards cards use bonus categories or spending tiers such as 2x points on travel and dining and 5x points on specific airline purchases.²

Many cards also offer sign-up bonuses; as a hypothetical example, earning 50,000 miles for spending $3,000 during your first three months.

Tracking and monitoring your travel rewards

Each month, you can review your credit card statement to see your transactions and how many rewards you have earned. You should be able to view this from your online dashboard. Some card issuers will send your rewards to the accompanying airline or hotel loyalty program’s website, a common practice with co-branded credit cards.

Redeeming your rewards

Once you have accumulated enough points or miles, you can redeem them for various travel benefit options like flights, reward hotel stays, and car rentals. The redemption process will vary depending on the card issuer.

However, it usually involves logging into your account to view your rewards and selecting the desired redemption option, whether you’re looking for a statement credit or to book a rental car.

Some card issuers will have their own rewards redemption portal where you can book flights, hotels, and more directly from their website.³ Others may redirect you to the partner’s booking site so you can redeem your rewards for travel.⁴

Travel credit cards are either co-branded or non-branded. A co-branded card is a partnership between a credit card issuer and an airline or a hotel chain. These cards offer higher reward rates and special perks with a specific airline and hotel brand.

On the other hand, non-branded travel cards don’t favor any particular brand but provide transferable rewards on travel purchases in general.

Most travel credit cards will fall into one of these six main categories:

Airline

Airline credit cards are co-branded with an airline and offer miles in the loyalty program of that particular airline carrier. So, if you’re a frequent flier with a particular airline, this could be a great option for you, as it will allow you to earn a favorable amount of reward points fairly quickly.

You can often redeem those miles for plane tickets, seat upgrades, priority boarding, discounts on in-flight food, free checked bags, and more.

Hotel

Hotel credit cards are co-branded with a hotel chain. You’ll earn points with the hotel’s loyalty program, which you can redeem for things like free hotel stays, room upgrades, complimentary breakfast, and late checkouts.

General

General travel credit cards are non-branded and offer greater flexibility in how you can earn your rewards. With these travel cards, you earn points for everyday purchases, plus bonus points for spending in specific categories, like dining and travel.

Your points are redeemable for flights, vacation packages, hotel stays, rental cars, and more. Some cards even allow you to transfer your points to partner airline and hotel loyalty programs.

Fixed-rate

Fixed-rate travel credit cards allow you to earn a set number of points or miles for every dollar you spend. Cardholders can then redeem these points at a fixed rate – usually 1 cent apiece – toward travel purchases.⁵ Unlike general travel credit cards, there are no spending categories to keep track of, and it’s less confusing to earn rewards.

Flat-rate

Flat-rate travel cards offer a flat amount of points or miles for every dollar spent, which can be used for travel purchases. For example, a flat-rate travel card may offer an unlimited 2X miles per $1 spent regardless of the purchase category.⁶

Like a majority of credit cards, flat-rate travel cards have a variable APR which means the annual interest rate can fluctuate. These cards also may or may not have an annual card membership fee.⁷ However, this type of card is great for those who want to enjoy travel perk bonuses but don’t want to deal with the complex strategies required to earn points or miles.

Premium

Some travel credit cards are considered premium or “elite” because they offer more benefits to cardholders.

Designed for frequent flyers, these cards typically have a higher annual fee but come with more perks. Travel credits, elite status benefits, travel insurance, luxury hotel perks, and airport lounge access are just some of the rewards offered.

In addition to the miles and points you can earn, there are a handful of other factors to consider when comparing travel credit cards. Look for ways to rack up rewards and maximize your savings. Here are some of the ways you can do that:

• Sign-up bonuses – These are bonuses offered to new applicants to entice them to open an account. To unlock these bonus points, cardholders will typically have to spend a certain amount of money for new purchases (not a balance transfer) within a specified number of months after signup.
  These bonus points can be worth a lot of money toward free travel, but make sure the spending requirement is realistic for your budget since it’s easier to get into debt with a credit card vs a debit card. If you don’t repay your card balance in full each month, you’ll end up paying interest on your balance based on the card’s fixed or variable APR, canceling out any rewards you earn.
• Card with no annual fee – Not all travel credit cards charge an annual fee, so it might be in your best interest to find the ones that don’t. Cards that charge an annual fee typically offset it by offering more perks. Premium cards can charge several hundred dollars annually, so figure out if the perks outweigh the cost of the fee.
• No foreign transaction fees – Some travel credit cards will charge a foreign transaction fee when you use the card in another country or with foreign merchants online. If you travel abroad frequently, you should consider getting a credit card with no foreign transaction fees
• Added perks – Extra airline perks, like priority boarding, free checked bags, global entry, or TSA PreCheck, can make your airport experience much more convenient. And hotel perks, like discounted rooms and complimentary breakfast or a free reward night every 12 months, can make your hotel stay a lot more enjoyable.
• Comprehensive coverage – Some travel credit cards include travel insurance for delays, cancellations, or lost luggage. Consider a credit card that includes these protections so you don’t get left with the bill when things go awry.
• Earning potential – Each travel rewards card is different, so consider how you travel and spend money, especially when considering the cards that offer bonus rewards in specific categories. If a card offers more points for dining out but you rarely eat at restaurants, this may not be the best option to provide significant rewards based on your lifestyle.
• Redemption options –  Ensure the card offers flexible reward redemption options that align with your travel habits and preferences. If you primarily book each flight with a specific airline, considering a co-branded card can help you maximize your rewards.

Let’s break down the advantages and potential disadvantages of opening a travel credit card.

Here are some ways to master your travel credit card to earn more points or miles that can help supplement the cost of your next trip.

• Choose the card that aligns with your needs  – Consider the type of traveler you are, your spending habits, and your preferred travel brands to book a flight or hotel stay when choosing the best travel card for your needs. This way, you can maximize the travel perk benefits that align with your lifestyle.
• Maximize sign-up bonuses for extra benefits  – Sign up for a card with a generous bonus offer and make sure to meet the minimum spending requirement within the given timeframe. To ensure you meet the sign-up bonus spending requirement, try to make all the purchases that you’d normally make on that card for the first few months, whether it includes home maintenance or repairs, weekly groceries, or tickets to a concert you planned on attending so you’re not spending more than you budgeted to spend.
• Familiarize yourself with all applicable fees upfront  – Pay attention to fees like an annual fee or balance transfer fee. While some annual fees may be worth it for the benefits provided, evaluate them each year to determine if they are still worthwhile based on your current spending and travel habits.
• Beware of foreign transaction fees  – Foreign transaction fees can range from 2% to 3% of the purchase price, which can add up quickly if you use your card for purchases out of the country.⁹ Opt for cards with no foreign transaction fees to save money on purchases made abroad.

Travel credit cards can help reduce your travel expenses if you steer clear of bad credit habits. Pick the best card for you and your needs by narrowing down the one that will reward you for the purchases you frequently make and maximize the card’s benefits.

Increasing your credit score can also improve your chances of getting a rewards travel card that meets your needs.