Best Travel Credit Card
- How Do Travel Credit Cards Work?
- Is a Travel Credit Card Right for You?
- What to Look for on a Travel Credit Card?
- Travel Benefits to Look for in a Credit Card
- Avoid Dynamic Currency Conversion
Chances are, you have at least one credit card in your wallet. It can build your credit history, provide cash in an emergency, and it might come with a few travel perks. In fact, it’s the perks that make travel credit cards a top pick for people on the move. Depending on how often you travel, these cards can help you save in many ways.
How Do Travel Credit Cards Work?
If you don’t have a travel credit card—or any rewards credit card for that matter—you could be missing out on amazing incentives and freebies. These credit cards work like every other credit card, in that you’re able to charge now and pay later. But unlike some credit cards, travel credit cards include a rewards structure that lets you earn points or miles on purchases—typically 2x points or miles on travel-related purchases and one point or mile on other purchases.
These rewards are redeemable for free or discounted travel, so use the credit card as often as possible to maximize your reward. For example:
- use the card for everyday purchases like groceries, gas, shopping, etc
- shop through your credit card issuer’s online shopping portal
- get creative and pay contractors, babysitters and utility companies with the credit card
- take advantage of incentives to earn bonus points
Is a Travel Credit Card Right for You?
A travel credit card offers generous rewards and flexibility, but this doesn’t mean it’s the right card for your wallet. These credit cards also have annual fees, higher interest rates, and they’re usually designed with a specific borrower in mind.
Here are three questions to ask yourself when deciding whether this card is right for you.
- How often do you travel?
Remember, these cards are designed to reward travel and reduce future travel costs. To fully benefit, you need to book airfare, cruises, hotels, rental cars and other travelers on a regular basis; and you need to use the credit card regularly. Unused miles or points may expire after a set time, and you may lose accumulated points or miles if your account becomes inactive.
Be realistic with how travel fits into your lifestyle. You might like the idea of having a travel credit card, but you should only apply for a card if it makes senses. If you’re not a frequent traveler, a non-rewards or a cash back rewards credit card might be a better fit for you.
- How’s your credit score?
Although you don’t need perfect credit to get a travel rewards credit card, good credit works in your favor because many of these cards have higher credit score requirements. So having no credit or bad credit could result in a credit card issuer rejecting your application.
Being rejected doesn’t mean you can’t ever get a travel credit card. But you must take steps to improve your credit score. Here’s what you can do:
- Get a free copy of your credit report from AnnualCreditReport.com and check the report for inaccurate information. Removing errors from your report helps increase your credit score.
- Apply for a secured credit card to build or rebuild a credit history. These cards—which require a security deposit—are easier to get with no credit or bad credit. Make sure the bank issuing your secured credit card reports activity to the three major credit bureaus.
- Pay bills on time. Your payment history makes up 35% of your credit score. Pay your bills on time every month to add positive activity to your credit report.
- Do you carry a balance?
Travel credit cards reward people who use their credit cards often, making these cards a good or bad thing depending on how you manage your account.
Using a travel credit card for everyday purchases like gas, entertainment and groceries is one way to quickly build up enough redeemable points. But this habit can backfire and hurt you in the long run.
To avoid long-term debt, give yourself a monthly spending budget and only charge this amount on the card every month. At the end of the statement cycle, pay off the balance in full.
This takes some discipline and self-control, but it is well worth the effort. You’ll pay less interest, avoid massive debt, and you’ll improve your credit score because the amounts you owe make up 30% of your credit score.
What to Look for on a Travel Credit Card?
You might be tempted to apply for the first travel credit card you come across—fight the urge. There is no such thing as a perfect travel credit card, but there are cards for your particular lifestyle and needs.
A card that works for another person might not be the best fit for you. To find the right match, understand the pros and cons and compare features of different cards.
- Sign-up Bonuses
It takes a lot of points and miles to enjoy any significant savings with a rewards credit card, as much as 25,000 to 30,000 points/miles for one free airline ticket. With that being said, make sure you’re taking advantage of sign-up bonuses.
These bonuses are a major pro because you’re rewarded with extra points or miles when you spend a certain minimum amount within the first three months of opening the account. This is an excellent way to earn points fast—just make sure you compare the spending minimums of different travel credit cards to improve your odds of qualifying for the bonus.
Some travel credit cards award sign-up bonuses when cardholders spend $5,000 in the first three months, whereas other credit cards award the bonus when cardholder’s spend $2,000 in the first three months.
You don’t want to miss out on the bonus, so consider how much you’re likely to spend with the card over the first three months, and then apply for a travel credit card with a doable minimum spending requirement.
- Earning Potential
If you’re serious about accumulating points or miles and scoring low-cost travel, look for cards offering the highest earning potential. Why settle on a credit card that rewards one point or mile for everyday purchases when you can earn more with a different card?
Nobody said choosing the right credit card would be easy or fast, so don’t rush the process. There are dozens of credit cards available to you, and it takes time to comb through the selection and find the card with the best features. Just know that it is possible to get a card with a higher point reward.
For example, the Venture credit card from Capital One earns 2X miles per dollar on every purchase—non-travel, and travel. So whether you’re buying groceries or booking airfare, you get double the rewards. There’s even a feature on the issuer’s website that estimates the number of points you could earn over 12 months based on monthly spending. Spend a minimum $1,000 a month and you’ll earn 24,000 miles a year.
- Annual Fees
An annual fee is definitely a con of travel credit cards, but don’t pass on a card just because there’s a fee. Understandably, paying for the privilege of using a credit card doesn’t sit well with everyone. Keep in mind, however, fee-based cards usually have a superior reward structure, and you might accumulate points faster due to a higher earning potential. So think about what you’re getting in return, and then determine whether an annual fee is worth it.
If you travel frequently, a card with an annual fee might have a few cost-saving perks. These include free checked baggage, priority boarding, free companion tickets, discounts on food and drinks, and no foreign transaction fee. So although you’ll spend money upfront for the card, you’re also saving money in other areas.
The truth is, annual fees are becoming commonplace with many rewards credit cards. These fees can be as low as $59 a year or as high as $450 a year. Some credit card companies waive the fee the first year.
- Calculate Redemption Value
Another benefit of a travel credit card is receiving higher point valuations and redemption, but this doesn’t mean that every card has the same redemption value. Read the terms and conditions of different credit cards to compare the value of points, and research the number of points you’ll need before you’re eligible for a redemption.
For example, miles with the Discover It credit card are worth about $0.01 per mile, so you’ll have to accumulate 50,000 miles before you can redeem a ticket with a cash value of $500. On the other hand, if you shop around and find a credit card with miles valued at $0.02 per mile, you would only need 40,000 miles to purchase a ticket of similar cash value.
Be aware that some travel credit cards have specific requirements for booking travel. You may only be allowed to redeem points or miles when booking through their portal, thus restricting your ability to shop around and purchase from other travel sites. Or you may encounter blackout dates.
For more freedom, select a travel credit card with no blackout dates, and one that lets you redeem points or miles on any travel website or app.
- Foreign Transaction Fees
Some credit cards charge a foreign transaction fee, which is a fee tacked onto credit card purchases made in a foreign country. This fee is usually 3% of the purchase price and can add up significantly while traveling. This is a downside to using credit cards abroad, but you can avoid this added expense.
While shopping around for a travel credit card, specifically look for cards that don’t charge a foreign transaction fee. If you’re unsure whether a card charges this fee, call the credit card issuer and ask.
- Interest Rate
Whether you’re getting a no-frills credit card or a travel credit card, always compare interest rates before choosing a card. This is especially important with a travel credit card because rewards cards tend to carry higher rates.
Interest is how the credit card issuer makes money and these charges can add up to hundreds or thousands over the months or years when you carry a balance. High-interest charges increase your out-of-pocket cost and essentially negate any savings received with a travel credit card, such as a free checked bag and onboard discounts.
Interest rates vary from card to card and depend on your credit score. Credit card applications must disclose information about interest rate ranges. Compare different rates to find the best low-interest travel rewards credit card. Once you have the card in your possession, pay off your balance every month to avoid paying interest.
Travel Benefits to Look for in a Credit Card
Not only should you compare the above features when shopping for a travel credit card, you should also compare travel-specific benefits to ensure you’re getting the most out of a card. In other words, what other benefits can you expect? These vary but might include travel insurance, concierge services, and emergency card replacement at no additional cost.
For credit cards offering traveler’s insurance, make sure you understand how coverage works before using the card to book a trip. Traveler’s insurance typically includes rental car protection, lost or damaged baggage, travel delays and trip cancellation. Keep in mind that insurance only covers losses up to a certain amount.
Avoid Dynamic Currency Conversion
Traveling can be expensive, so seek out travel credit cards that offer generous bonuses to maximize your savings. Avoiding foreign transaction fees is one way to keep money in your pocket and maximize credit card benefits, but this isn’t the only way. You can also save money by declining dynamic currency conversion while overseas.
This is the option of converting an overseas purchase from the country’s currency into U.S. dollars at the point of sale. It’s convenient because you don’t have to do the conversion math in your head, and you’ll know how much you’re spending when shopping in another country. But dynamic currency conversion isn’t free, with fees averaging about 7% of the purchase. To save money, decline the service and use a currency converter calculator to keep track of spending.
Learn More about Travel & Airline Credit Cards
A travel credit card is an excellent choice if you’re a traveler and you’re looking to save money. Airfare, hotels and car rentals aren’t cheap, but you can save significantly with the right credit card.
Never assume that every travel credit card is the same. Do your research, compare options and then choose a card that fits your lifestyle.