7 things that will help you understand using travel rewards cards to your advantage

From the very beginning of our travel together, my husband and I have done all of our international flying with frequent-flier-miles. With Asia and Easter Island both on our itinerary for our first gap-year of travel, crossing the distances we had in mind would have seemed financially impossible for us without frequent flier miles.

Perhaps there’s a misconception out there that you must first pay for a significant amount of flying before you can accumulate enough frequent-flier-miles for a free international flight. That may be true when using the traditional approach to earning miles. But there is another strategy that has become quite popular for earning miles that requires no flying at all.

Credit cards.

There are dozens of them. And of course, it can get quite confusing. So I’ve put together a list of 10 things to help you understand travel rewards cards, and therefore, use them to help you with your own travel goals.

1.) Not all cards advertised as “travel rewards cards” will earn you frequent flier miles.

There are basically four types of currencies you can earn with travel rewards cards: 1) frequent flier miles with a mileage program, 2) hotel points with a hotel rewards program, 3) points that can be transferred into frequent flier miles or hotel points, and 4) points that can be used to reimburse money you spend on travel.

The latter can be good for covering what frequent flier miles cannot, but won’t be as significant in earning you a free international flight.

2.) Just because a card is offering a bonus, it doesn’t mean it’s a good bonus.

All the major travel credit cards advertise mile or point bonuses. This is the main appeal in many cases however, it’s worthwhile to do some research when you see a card offering a bonus. For instance as mentioned above, there are various currencies in the travel rewards card world. Find out what an advertised bonus could realistically translate to in terms of travel.

Even once you have acquainted yourself with the bonus’ currency, it’s also good to know the difference between a good bonus and a weak bonus. At least when it comes to miles, hotel points, or points that can be transferred into miles, we generally tell people that 50,000 points is a good bonus.

3.) There are often requirements you must reach before you earn the bonus.

Occasionally a card will offer a bonus that you can receive as soon as you sign up or make your first purchase. But more often there is a spend-requirement you must reach first. Generally it’s set anywhere from $1,000-$10,000 spent within the first 3-6 months depending on the card.

Many cards offer bill-pay set-ups online to help you work towards that spend-requirement with your ordinary spending.

In the travel-hacking community however, it has become quite popular to use your credit card to purchase something that can easily be turned back into useable cash. Gift cards for example have paved the way for a cheap though admittedly complicated strategy for reaching spend requirements.

4.) Many cards also have an annual fee, though sometimes it’s waived for the first year.

It’s up to you how to handle this annual fee. Sometimes the card’s regular earnings from ordinary spending, annual gifts, or other card perks are enough for the annual fee to be worth it. That is up to you but you should understand that canceling a card after just a year can have an effect (albeit a fairly small one) on your credit score.

Your credit score takes your average length of history into account and having multiple 1-year accounts will lower that average. Because of this, we recommend having a few no annual fee cards that you will keep, even if you never use them. We also recommend that, if a person doesn’t feel they can keep up with the annual fee (or doesn’t wish to), they try having the card downgraded to a no-annual fee card after the first year.

5.) Collecting miles with credit-cards has a lot to do with credit score.

Most of the good travel cards require you to have at least a fair credit-score for approval. You can get a free credit score estimate with sites like Credit Sesame or Credit Karma. Technically they are just estimates, but they tend to be pretty close to accurate.

6.) Having multiple credit cards can actually improve your credit score.

Credit score works a little differently than many people may assume. It is less a measure of your financial status, and more a measure of your ability to be responsible with debt. It’s all about debt management really.

Therefore, the more cards you are responsible with, the higher your score will be. We have tested this and seen it to be true, as have many others.

Of course, the most important point here is that being responsible with multiple cards has a good effect. Being irresponsible with multiple cards could be very dangerous.

You can read more about what responsible credit card use is in our post about how credit score and travel-hacking work.

7.) Applying for cards too closely together will prevent you from getting approved.

Applying for one card today and another one tomorrow will make you look desperate and will prevent you from getting approved for a card, even if your credit score is great. If there are multiple rewards cards you’re interested in, wait at least 3 months between each application. Some suggest you don’t need to wait that long, but this is the safer strategy.

Credit cards are a huge part of the travel-hacking budget strategy and these 7 things will give you a place to start your research.  Ultimately, the idea here is that rewards cards are helping you and that you’re in control of them, not the other way around.  While trial and error is certainly a part of everything in life, especially when it comes to credit and credit cards, it’s good to be as informed as possible from the beginning.