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Update: Some offers mentioned below are no longer available. View the current offers here – Starwood Preferred Guest Credit Card from American Express
Today, TPG Senior Points & Miles Correspondent Jason Steele answers 8 questions about travel rewards credit cards that seem to always be on the minds of TPG readers (and in the TPG email inbox).
Those of us who have been playing the points and miles game for a while tend to take travel rewards cards for granted. It’s easy to forget that when you’re just getting into award travel, you haven’t learned all the tricks of the trade. In this post, I want to address some of the most common questions that I hear from people who are new to travel rewards credit cards, or are just now starting to take this hobby more seriously.
1. If I cancel my credit card, will I lose my points?
This is a crucial question for many rewards credit cardholders, especially those who have cards with pricey annual fees. You might not be comfortable paying an annual fee year after year if you decide a card’s benefits don’t justify the expense, but you might not be ready to redeem your points or miles when you decide to close your account.
Fortunately, for the most part you won’t lose points or miles earned from rewards credit cards that are co-branded with airline, hotel, or other travel partners (like the US Airways Premier World MasterCard or Citi Hilton HHonors Reserve Card). The card issuer and travel partner are separate entities, so once you earn rewards from a sign-up bonus or from spending, the points or miles are transferred to your loyalty account, and that transfer is irrevocable. The standing of your credit card account with the bank is (mostly) irrelevant.
If you’ve ever called to close an account and been told the opposite, I’m not surprised. Credit card phone reps will often say that you’ll lose your rewards by canceling your card, but what they really mean is that your rewards might expire (not that they will immediately be taken away), since most loyalty programs wipe out your points or miles if your account sits idle for too long. Keeping your card guarantees activity in your loyalty account due to the annual fee. Phone reps tend to use language that implies your rewards are at risk, so don’t be mislead. If there’s ever a doubt, speak to a supervisor and ask for clarification.
Things are different with travel rewards cards that offer points or miles in programs operated by the card issuer itself, such as American Express Membership Rewards, Chase Ultimate Rewards, Citi ThankYou, and Citi ThankYou Rewards. With programs like these, you must maintain at least one eligible account open and in good standing, or you will lose your rewards. For example, before closing my Platinum Card from American Express (with its $450 annual fee), I opened a no-fee Amex Everyday Credit Card to retain my Membership Rewards balance (see Strategies for Minimizing Credit Card Annual Fees). The notable exception to this rule is the Discover it cards, which allow members to retain rewards even if the account is closed.
2. How will applying for rewards credit cards affect my credit?
For most people, applying for a new rewards card will have very little effect on your credit score. When you apply for a card, a new inquiry will appear on your credit history. Several inquiries within a short period of time can be interpreted by the credit scoring formula as a sign of economic distress. Basically, the assumption is that you need loans because you’re running out of money, not that you just want to earn more rewards. Thankfully, this effect is relatively small and temporary.
Opening new accounts can actually help your credit score in the long run, since you both add to your credit history and reduce your debt-to-credit ratio (assuming your debt remains relatively constant). Finally, there’s no practical difference between credit scores above 740. So if applying for a few credit cards reduces your score from 770 to 760, any impact on future loan applications or interest rate qualifications will be negligible. In short, there’s no such thing as an A+++++ credit score.
3. Can I earn a sign-up bonus more than once?
Yes, you can! Most credit card issuers will allow you to earn multiple sign-up bonuses for the same product, but there are some exceptions. Chase currently limits bonuses to those who have not received a bonus for the same card product within 24 months. In addition, American Express allows just one bonus per consumer product. Other card issuers have less well defined rules; some people have been able to receive multiple bonuses within 60 days of applying for the same card, while most tend to wait at least one year.
4. Should I just cancel my card after earning the sign-up bonus?
You could do that, but it really isn’t a good idea. Aside from being unable to earn additional rewards from spending, you’ll lose out on all the benefits of that credit card, which could include baggage fee waivers, lounge access, upgraded hotel status, and more. In addition, you’ll shorten the average age of your accounts on your credit report, which could hurt your credit score. Furthermore, you have nothing to gain by cancelling the card before the next annual fee is due in one year, and you could lose out on valuable promotions (like the recent 20% points refund on Hyatt award stays that’s open to Diamond elites and those who have the Hyatt Credit Card.
Finally, I’ve always felt that sign-up bonuses are offered as an incentive to try a new product and form a relationship with the card issuer. If I received a bonus and then immediately canceled the card, I’d feel like I wasn’t living up to my side of the bargain, and I’d also be concerned that the bank wouldn’t want me as a customer in the future.
5. There are a lot of different travel rewards credit cards; what’s the one card I should get first?
If you’re new to travel rewards, you want something flexible and easy to use. I always recommend the Starwood Preferred Guest Credit Card from American Express. Each dollar you spend on the card earns one Starpoint in the Starwood Preferred Guest program, and Starpoints are the most valuable rewards out there according to TPG’s latest monthly valuations. That’s because these points can be transferred to over 30 different airline carriers, and can be redeemed for hotel award nights at with Westin, Sheraton, and other Starwood brands.
This card currently offers a sign-up bonus of 25,000 points: 10,000 after your first purchase, and another 15,000 after you make $5,000 in purchases within the first 6 months. There’s a $65 annual fee for this card that is waived the first year. If you don’t have time to evaluate all of the different rewards credit card offers, the Starwood card is a good place to start.
6. Is earning travel rewards worthwhile if I’m paying interest on my purchases?
Although about half of American credit card users carry a balance, I don’t recommend rewards credit cards to those who do. These cardholders should focus on finding cards with the lowest possible interest rates (which will not offer rewards), or one with a 0% APR promotional financing offer. In addition, being rewarded for spending is not the kind of incentive you need if you’re struggling with debt.
The ideal user of a travel rewards card is someone who always avoids interest charges by paying each month’s statement balance in full and on time. Once you’ve paid off your debt and are in the habit of paying your balance in full, you can consider getting a card that earns rewards.
7. Do I have to have a business to receive a business credit card?
Yes, you do, but it doesn’t need to be a large business. If you mow lawns, walk dogs, or buy and sell things online, then you have a business that qualifies for a business credit card. Furthermore, your business qualifies even if you’re just getting started. If you have incorporated and have an Employer Identification Number (EIN), you can use it to apply for a business credit card. But even if you’re a sole proprietor without an EIN, you can apply for most business credit cards by using your Social Security number instead.
8. Are points and miles more valuable than cash back?
Sometimes. The value of points and miles depends on how you redeem them. If you use 25,000 airline miles for a domestic round-trip ticket that would have cost $250, then you’re only getting one cent per mile in value. If you used a typical airline credit card that offered just one mile per dollar spent, then you would have been better off using a card that offers cash back at a higher rate, such as the Citi Double Cash card.
On the other hand, if you use those same 25,000 miles for an award ticket on a flight booked with little advance notice that would have cost $1,000, then you’re getting four cents per mile (or a 4% return at one mile per dollar), which is twice as good as a card that offer 2% cash back. Travel Rewards cards can easily give you a better return than the top cash back cards when you redeem for things like premium class international flights or free nights in luxury hotels. The key is learning how to maximize your points and miles, and for that, you’re in the right place!
What questions do you have about travel rewards credit cards? Please ask away in the comments below!
The Platinum Card® from American Express
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