I spent most of my adult with two no-annual-fee credit cards, one for personal use and one for business use as a consultant with frequent travel expenses. I collected points with both of them, without really paying much attention to it. I didn’t realize till a few years ago, that the very good credit I earned over many years of being financially responsible was very attractive to banks and would give me access to many rewarding credit cards.
A lot of digital ink is spilled on the “free” flights and hotels you can get by signing up for credit cards, and plenty of amazing reports can be found to prove it. As tempting as signing up for those cards is, there are risk associated with it and some ground rules I suggest to follow before signing up:
- Know your credit
Banks offer great sign-up bonuses and ongoing rewards to win profitable customers and your personal credit score is the entry ticket for their approval. You can get your free credit score, as well as tips to improve it on sites like this
- Pay off your credit cards in full every month
The maximum reward you can earn with credit cards is somewhere between 2-3%. While that is very attractive, it pales in comparison to the interest rates the credit card companies charge, often 15-20%! If you have credit card debt or don’t pay your credit card balance in full every month (and I really mean every, single month, without exception), you should not apply for rewards cards and stay out of this “game”. Find a program to pay-off your debt, get into the habit of paying your cards automatically, in full every month, and then evaluate rewards cards as an additional way to save money!
- Watch your credit, watch your spend
The available sing-up bonuses are very tempting to get more and more cards, more and more “free” travel – but almost all bonuses come with minimum spend and you have to make sure that is in line with your regular spend and/or you are able to meet it with an acceptable cost in time and money to you! While signing up for new cards has only a small impact on your credit score, missing a payment on a new card, increasing your credit useage due to minimum spend and other “side effects” of using new cards can have a negative impact on your credit score. You should check your score frequently. You don’t want your “free trip to paradise” to prevent you from getting a new mortgage!
With those warnings out of the way, here is how we evaluate the cards:
First off, I do not receive any commissions for any of the cards I review. When reading the many blog posts about great credit cards, keep in mind that many bloggers receive commissions of up to $200 for each person signing up through their link!
While I certainly have an opinion on many credit cards and recommend some wholeheartedly, there is no financial gain for me whether you sign up for one or not! I encourage you to consider the incentives involved when forming your opinion on credit cards and programs.
The great attraction for rewards card is that aspirational trip to a dream destination, flying in First Class, staying at a luxury property or just getting free flights home for the holidays. Yet to evaluate objectively, I will attempt to quantify the value received from sign-up bonuses and earn rates. I will provide you with the data and give you my personal evaluation and how I got there. That evaluation might be different from other bloggers and I encourage you to read other reviews to form your own opinion! Ultimately, only you can assign a “value” to a reward flight or hotel and I will provide some guiding points to establish that value.
Some of the key metrics I am using are as follows:
- Value per point/mile
Based on typical redemption rates for flights or hotels, you can establish a value per point. I encourage you to read and compare to find your own value. A great source is www.nerdwallet.com, which has reasonable values for many reward currencies.
- Redemption Rates
Most hotel programs have some very low redemption rates for some basic hotels and sky-high rates for their best properties. To exclude the exceptional properties at the bottom and top of the scales, I have gone through the (very time consuming effort) to analyze the different chains to establish the points needed for at least 10% of their properties and 90% of their properties. I use the redemption rates at those points to compare the programs, rather than the lowest/highest redemption rate that might only apply for a handful of hotels in places you might never go.
- Minimum Spend
One reason many mileage programs have been turned from loyalty programs into profitable businesses on their own is that billions of miles/points sit unused in the accounts or expire unused.
While I encourage you to sign up for any program of a hotel or airline you are using (I belong to over 40 myself), the miles only have value if you can use them in a meaningful way (and that usually does not include gift cards or merchandise!)
I will provide the minimum number of nights you have to stay, miles you have to fly or money you have to spend to reach an award with that program. If you are not able to reach that minimum spend, you should probably look for other programs that better meet your personal needs. There is no “best” credit card or program – only ones that work best for you and the answer is not the same for everyone!
As most programs have shifted from loyalty programs to profit centers, they have opened up the opportunity to purchase certain benefits, like status, upgrades, free nights or free checked luggage, through holding a credit card. I will list those benefits separately and evaluate their worth! In many cases those benefits alone are worth signing up for and holding a credit card, regardless of other qualities of the associated hotel or airline program!