Travel rewards and credit cards are a wonderful way to save money on travel and earn incredible cashback. However, not all rewards credit cards and loyalty programs are created equal. There are so many different perks, ways to redeem rewards, and credit card options that deciding which ones are right for you can be a challenge.
Whether you are new to the world of credit card rewards or are an experienced veteran, you may have questions that need to be answered. Here are a few of the most commonly asked questions about travel rewards credit cards.
Table Of Contents
- What is the best travel rewards credit card?
- I don’t have any debt, not even a mortgage, and I have really good income. Why can’t I get approved for a credit card?
- I have a perfect credit score and I don’t want to mess it up! Will applying for credit cards ruin my credit?
- My credit score is not that high. What cards can I get?
- Will applying for multiple credit cards ruin my credit score?
- So I’ve got the card, met the minimum spend, and received the bonus. Now what? Do I close the card?
- My card’s first annual fee just posted. What do I do? Keep the card? Close the card?
- I’ve looked at all the benefits and decided I want to close the card. Will I lose the points and miles I earned with this card?
- Will closing the card affect my credit score?
- If I downgrade a card with a high annual fee will I get the sign-up bonus for the new card?
- What is the 5/24 rule? Are there other rules I should be aware of?
- What if I’m an authorized user?
- What if I wasn’t auto-approved?
1. What Is The Best Travel Rewards Credit Card?
Saying that there is one “best” credit card is like saying that there is one best pair of shoes. I love my tennis shoes, but they wouldn’t be my choice for a job interview or a formal event. Credit cards are the same way with certain cards being better suited for one situation over another.
Banks often limit credit card bonuses so people don’t take advantage of them. Because of this most people start with Chase. The Chase 5/24 Rule limits your ability to get new cards more than any other bank rules. If you don’t have a specific vacation in mind, the Chase Sapphire Preferred Card is a solid choice. Its Ultimate Rewards points are flexible and the card has many attractive transfer partners.
You need to know what you’re looking for before deciding on the right travel rewards credit card to meet those goals. Do you want free checked bags, flexible points, free hotel nights, or something else? Once you narrow down the benefits that are most important to you, you’ll find the right card for you.
For example, I love the Southwest Rapid Rewards Priority Credit Card and the perks it provides, such as its great sign-up bonus of 40,000 points if you spend $1,000 in the first three months. It also gives you 7,500 points and a $75 travel credit to be used on Southwest every year on your anniversary of having the card. You’ll earn 2 points for every dollar spent on Southwest and participating hotel and rental car purchases–as well as 1 point per dollar spent on everything else. There is an annual fee of $149.
But if your goal is to fly to Europe, book a free hotel at an all-inclusive resort, or get spoiled in First Class, this rewards credit card won’t deliver.
The Chase Sapphire Preferred Card or Capital One® Venture® Rewards Credit Card are great all-around cards, but even those aren’t perfect for everyone.
|Chase Sapphire Preferred Card||Capital One® Venture® Rewards Credit Card|
|Signup bonus||60,000 points ($750 in travel)||50,000 miles ($500 in travel)|
|Minimum spend requirement||$4,000 within three months||$3,000 within three months|
|Annual fee||$95||$95; waived first year|
|Rewards earning rate||2x on travel and dining|
1x on all other purchases
|2x on everything|
|Transfer partners||10 airlines and 3 hotels||15 airlines|
|Global Entry / TSA Precheck reimbursement||None||Up to $100 every four years|
|Foreign transaction fees||None||None|
|Auto rental collision damage waiver||Primary||Secondary|
|Trip cancellation / interruption insurance||Yes||None|
|Baggage delay insurance||Yes||None|
|Virtual credit card numbers||None||Yes|
|Learn how to apply for this card here.||Learn how to apply for this card here.|
2. I Don’t Have Any Debt, Not Even A Mortgage, And I Have A Really Good Income. Why Can’t I Get Approved For A Credit Card?
Paying off all of your debt is awesome and is one of the goals for many people in the ChooseFI community. However, when you don’t have any active credit accounts, it is harder for a bank to qualify you. Your payment history makes up one-third of your credit score. If you don’t have any open credit accounts, a bank cannot determine if you will make your payments on time. This can make an underwriter hesitant to approve your application.
Having a nice income will help you get approved for loans and credit cards, but income is not part of the credit score calculation. The higher your income is compared to the debt you are requesting, the easier it is for a bank to say yes.
As you look to earn travel rewards, you may have to take baby steps to build your credit. Instead of jumping into a travel rewards credit card like the Chase Sapphire Preferred Card, you may need to start with a secured credit card or one designed for people with limited credit histories.
Once you have a track record of on-time payments and keeping your balances low (also about one-third of your credit score), then you can apply for a better rewards credit card.
3. I Have A Perfect Credit Score And I Don’t Want To Mess It Up! Will Applying For Credit Cards Ruin My Credit Score?
Having a perfect credit score is great, but FICO doesn’t hand out medals for that accomplishment. To get approved for the best credit cards, you’ll need a credit score of at least 720 (or 760 in some cases.)
Every time that you apply for a new credit card, it affects all five areas of your credit score–payment history, utilization, new credit, mix, and the average age of accounts. If you apply for a lot of credit cards in a short period of time, banks become cautious because that is a sign of financial distress. However, applying for 2-3 new credit cards per year will not affect your credit score much.
A new inquiry lowers your credit score by approximately 3-5 points for about six months. The inquiry itself stays on your credit report for two years, but the impact is short-lived. A new account lowers your average age of accounts, but the impact varies by person based on the rest of your credit history. This will barely affect someone with several older accounts that they’ve had for years, while the impact is greater for someone just starting out.
As the new account reports to the credit bureaus, your credit score will continue to change. The increased credit limit lowers your overall utilization (balances vs. credit limits), which increases your score. As long as you pay your account on time, that is also a positive behavior reflected in your score. I recommend setting up an automatic payment of the minimum amount due to avoid fees and negative marks on your credit.
Related: How Many Credit Cards Should I Have?
4. My Credit Score Is Not That High, What Credit Cards Can I Get?
Just because your credit score is not that high, it doesn’t mean that you cannot get approved for a new credit card. However, you need to set realistic expectations and understand that you won’t get approved for many of the most valuable rewards credit cards.
A good place to start is with retail credit cards that are used exclusively with that merchant. The Target REDcard is a good one that offers 5% back on all of your Target purchases. For credit cards that are good anywhere, consider the Discover it Secured and Capital One QuicksilverOne Cash Rewards Credit Card. These are cashback credit cards suited for people with “fair” credit scores ranging from 580 to 669.
Increasing your credit score will take time. Keep your balances low relative to your credit limit (below 30% is good, below 10% is great). And only apply for credit when you absolutely need to. Don’t apply for store credit cards just to get a discount on your purchase. Saving 30% on a $100 purchase is not worth missing out on a $500 travel rewards bonus.
5. Will Applying For Multiple Credit Cards Ruin My Credit Score?
Every time that you apply for credit, your score drops 3-5 points temporarily. Applying for multiple credit cards magnifies the impact in the short term. After six months, the impact goes away and your score improves with the increased credit limit.
For example, I’ve been approved for seven credit cards over the last two years and my credit scores are in the 750-800 range.
Unless you file bankruptcy, have late payments, default on a debt, or do something else that is a major negative, your credit will recover quickly. And even those negative actions won’t “ruin” your credit forever. After 7-10 years, even the worst credit report items fall off as if they never happened.
6. So I’ve Got The Card, Met Minimum Spend, And Received The Bonus. What Now? Do I Close The Card?
Banks frown upon people that close credit cards shortly after meeting the minimum spend and receiving the bonus. If you want to continue to get approved for the best credit card offers, you should focus on being a good customer of the bank. A lot of money is spent bringing in new customers (ie: signup bonuses) and the bank won’t make money on you unless you keep the card long-term.
On the flip side, you shouldn’t give the bank money for no reason. If the credit card is not worth keeping for another year, then you should evaluate your options. Before canceling a credit card completely, consider one of these options:
- Evaluate the benefits to determine if the benefits are worth more than the fee
- Product change to a credit card with no annual fee
- Contact the bank’s retention department to discover if there are any offers
Are The Credit Card’s Benefits Worth The Annual Fee?
Even though I never spend on them, I keep several hotel credit cards just for the annual free night and automatic elite status benefits. Those hotel credit card annual fees are around $100 each, but the free nights can be redeemed for rooms that cost several times more than that. I view it as pre-paying for my vacation at a huge discount.
Most Banks Have Lower–Or No-Fee Versions Of Their Credit Cards.
For example, you can downgrade the Chase Sapphire Reserve ($450 annual fee) to the Chase Sapphire Preferred Card ($95 annual fee) or to the no-fee Chase Freedom or Chase Freedom Unlimited. This way you can keep your Ultimate Rewards points and continue earning more.
Keeping A Good Customer Is Cheaper Than Finding A New One.
Before canceling a credit card, ask to speak to the retention department. Based on your history with the bank, they may have offers that make it worthwhile to keep the card. You may get the fee reduced or waived, receive additional rewards, or something else.
7. My Card’s First Annual Fee Just Posted. What Do I Do? Keep The Card? Close The Card?
I view credit cards as employees of my wallet. Every year, I go through a performance review to decide if they providing enough benefits to justify giving them their paycheck (aka paying their annual fee.) Credit card benefits change on a regular basis, so a credit card that was worth it last year might not be worth it going forward.
Here are some reasons why might want to pay a credit card’s annual fee each year.
This is a good incentive to keep the card long-term if the value of the bonus points is more than the annual fee. For example, the Southwest Rapid Rewards Priority Credit Card gives cardholders 7,500 points (worth ~$105) every year upon renewal.
Bonus Hotel Nights
Most hotel cards offer a free night after your account anniversary. For example, the World of Hyatt Credit Card offers one free night in Category 1-4 hotels annually. And cardholders can earn a second free Category 1-4 hotel night each year by spending $15,000 before the card renews again.
You can double up on the free nights for even longer free night vacations if your spouse also applies for hotel credit cards. Some banks offer a small business version as well. This provides another opportunity to earn more free nights.
When I book vacations, I try to use the free nights for the most expensive nights, then use points or cash for the less expensive nights.
Free Checked Bags
Airlines continue to increase fees for checking a bag. Some of them are charging $30 per bag each way! Don’t be one of the travelers that pays this outrageous fee.
Most airline credit cards waive checked bag fees for the cardholder and companions traveling on the same itinerary. For a family of four, that’s a savings of over $200 for one round-trip flight. With most airline credit cards charging fees around $100, the card easily pays for itself on the first flight.
Airport Lounge Access
Having access to airport lounges is one of the best things to happen to my traveling experiences. Rather than struggling to find a seat at the gate before my flight, I seek out airport lounges. Inside these havens of the airports, I enjoy comfortable seats and a bunch of freebies, such as adult beverages, snacks, wifi, massages, and more.
Most travel rewards credit cards offer additional benefits to encourage customers to keep the card. Some examples of benefits that may be offered by your credit card include:
- Bonus points when spending on certain categories
- Reimbursement for signing up for Global Entry or TSA Precheck
- Primary or secondary rental car insurance
- Lost or delayed baggage insurance
8. I’ve Looked At All The Benefits Of Keeping The Card Long Term And Decided I Want To Close The Card. Will I Lose The Points And Miles I Earned With This Card?
The short answer is, it depends.
If the rewards you earned are airline miles or hotel points, once they transfer to that loyalty program, you will not lose them if you close your credit card. For example, if you close the Marriott Bonvoy Boundless Credit Card, all of the points that have already transferred will not be affected. However, any points that you’ve earned before the statement closes and gets transferred will be lost.
Points earned in bank programs are different and the rules vary by bank. In general, if you don’t have another card that earns the same type of points, you must redeem them or transfer to a hotel or airline partner. If not, then those points will be lost shortly after closing your account.
9. Will Closing The Card Affect My Credit Score?
Closing a credit card could cause your score to go up or down, depending upon how you do it.
Before closing your account, ask the bank if you can transfer the credit line to another account you have. This will keep your credit utilization down. If you don’t transfer your credit limit, it is lost and could cause your score to drop.
The age of your account also factors into the equation. If the card is newer, it might raise your average age of account, which could improve your credit score. On the other hand, canceling your oldest account could drastically reduce your average account age and lower your score. Before canceling an older account, consider changing it to a no-fee credit card to retain the history.
10. If I Downgrade A Card With A High Annual Fee will I Get The Sign Up Bonus For The New Card?
When you product change into a new credit card, it does not affect your ability to get the signup bonus for the new card. Banks don’t want to pay signup bonuses multiple times. Since you did not get a bonus, you are still eligible.
Keep in mind that the normal rules still apply for getting the bonus on the card you are getting rid of. For example, Chase requires applicants to wait at least 24 months from the date they receive a bonus before being eligible for a new bonus on that same credit card.
11. What Is 5/24 Rule? Are There Other Rules I Should Be Aware Of?
Banks continue to change the rules about who is eligible to receive a signup bonus. The goal is to keep people from signing up for a lot of bonuses, then canceling the credit card right away so they can sign up for another credit card bonus.
One of the most famous is the Chase 5/24 Rule. This rule prohibits applicants from being approved for most Chase credit cards if they’ve opened up five or more new credit cards from any bank in the last 24 months.
American Express has a lifetime rule where applicants cannot receive a bonus from the same credit card twice. You may be approved for the credit card, but will not receive the bonus. Luckily, Amex has added a warning screen during the application process to alert applicants if they are not eligible for a bonus.
Bank of America has the 2/3/4 Rule. You can get approved for a maximum of two credit cards within 60 days, three within 12 months, and four within two years.
12. What If I Am An Authorized User?
Authorized users on credit cards have many of the same benefits as the primary credit card owner. For example, authorized users of the Citi AAdvantage Executive World Elite Mastercard have complimentary access to the American Airlines Admirals Club airport lounges.
Being an authorized user also means that the credit card balance and credit limit also reflect on your credit report. Chase counts authorized user accounts as a new card when calculating your 5/24 Rule eligibility.
13. What If I Wasn’t Auto Approved?
Not all online credit card applications are approved immediately. When this happens, it is because you have been declined or the bank needs more information.
You can call the bank’s reconsideration line to inquire why it wasn’t approved automatically or you can wait until the letter arrives in the mail.
In my situation, I rarely get auto-approved when applying for new credit cards online. I’ve already reached the maximum credit limits with several banks. These banks will not approve me for a new credit card until I close an account or move the credit limit from an existing card.
I always wait 1-2 business days after applying before I call the bank. When calling, I ask if there are any questions that I can answer in order for them to make a decision. Some of the questions I’ve experienced involve verifying verify your address, income, or employment.
The Bottom Line
Credit card rewards are a powerful way to receive excellent benefits and save money on travel. The money you save can be used to accelerate your path to FI or to splurge on special experiences and meals while traveling. When it comes time to renew your travel credit card, make sure that the benefits are still worth the fees. If they aren’t, you have several options, including closing it and applying for a better rewards credit card.
What are the biggest questions you have about travel rewards credit cards?
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