Don’t make the rookie mistake of opening the wrong credit cards
If you’ve been thinking about opening a credit card (or two, or three) to book an awesome trip, you’ve come to the right place!
So, let’s say you live in Atlanta. Atlanta is a Delta hub. As a result, you’re most likely to fly Delta over other airlines. The current Amex Delta credit card offer of 60,000 Skymiles and no annual fee seems like a no-brainer, right? Wrong!!! Well, at least not if you’re a beginner.
The marketing of credit card products is impressive these days. I totally understand why people are tempted to apply for offers like this. It’s not that this is a bad offer. It’s just that there are other cards that you need to consider first. Prioritizing your credit card applications properly will set you up for more success!
Most credit cards that earn points/miles that you can redeem for travel fall into one of 4 categories:
- Airline co-branded cards.
- Hotel co-branded cards.
- Cards that earn bank points. Examples:
- Cash-back cards
Click here for more info on each of the 4 categories.
There are always exceptions, but if you’re new to this, I suggest avoiding airline and hotel credit cards as your first credit card applications. I would also avoid cash back cards, but that’s a whole other ballgame so I wrote a whole post about it!
Anyway, unless you have a plan in mind that requires a certain airline’s miles or a specific hotel’s points, I tend to favor cards that earn bank points, especially for beginners. I have two major reasons for this:
- Chase’s 5/24 rule
- Bank points such as Chase Ultimate Rewards and American Express Membership Rewards are transferable to several airlines and hotels. As a result, you have more redemption options and flexibility.
I do not suggest opening airline or hotel co-branded cards for beginners or for anyone under 5/24*
*If you do not know what I am talking about, read this post about Chase’s 5/24 policy. Basically, Chase is the issuer of some of the best credit cards for travel. Unfortunately, Chase limits the amount of credit cards one can open in a 24 month period. It is generally believed that anyone who has opened 5 or more credit cards in the past 24 months will not be approved for certain Chase credit cards. This includes any credit card account that shows on your credit report, not just Chase accounts. So if you open 1 Bank of America Alaska Airlines Card, 1 Citi AAdvantage card, 1 AAdvantage Barclaycard, and 2 American Express cards, you’re at 5/24 even though none of them are Chase cards.
Once you’re at 5/24 Chase will deny an application for a card subject to 5/24 such as Chase Sapphire Reserve. Trust me, you do not want to miss out on a Chase Sapphire card! So my suggestion is to wait on the airline and hotel co-branded cards from other banks until you’ve opened the Chase cards you want.
The main reason I do not suggest opening airline or hotel co-branded cards if you’re just beginning is because of the Chase 5/24 rule discussed above.
The second reason is that for everyday spending, I suggest using credit cards that earn transferrable points such as Chase Ultimate Rewards and Amex Membership Rewards. Chase Sapphire cards (which earn Chase Ultimate Rewards) are subject to 5/24, so a Chase Sapphire card should probably be one of your first choices.
I am absolutely NOT against applying for airline and hotel cards. Even a cash back card might make sense in some cases. But it is important to make sure you have any Chase 5/24 cards that you want before applying for cards issued by other banks. Note that some airline and hotel credit cards issued by Chase are subject to the 5/24 rule. The airline and hotel cards that I’m referring to in this post are those that are either issued by other banks or cards that are issued by Chase but not believed to be subject to the 5/24 rule.
For example, the Chase Hyatt does not seem to be subject to the 5/24 rule. That means it is a card that you can apply for even after you’re over 5/24. So you would not want to make this one of your first cards. On the other hand, the Chase Marriott card is a 5/24 card. That means that if you want the card, you need to apply for it before you reach 5/24.
Once you’ve opened the Chase 5/24 cards you want (and maybe an Amex MR earning card) and you’re ready to open more, airline and hotel cards make it possible to earn a large amount of miles and points thanks to sign-up bonuses.
Hotel and airline credit cards are great for sign up bonuses
There are two ways to earn miles and points from airline and hotel credit cards:
I do not recommend using airline and hotel credit cards for everyday spending
Why? The short answer is that cards that earn transferrable points such as Chase Ultimate Rewards and American Express Membership Rewards give more options for successful redemptions.
For anyone wondering what “everyday spending” is, it is exactly what it sounds like. These are purchases that you make every day. This is anything you can pay with a credit card such as groceries, clothes, utility bills, plane tickets, etc.
Most Airline miles and hotel points are not transferrable
When you earn miles/points from an airline or hotel co-branded credit card, you’re earning miles/points in the program with which your card is co-branded. Airline miles and hotel points generally are not transferrable (or are a horrible ratio) to other programs. So if you’re using an AA credit card, you’re only earning AA miles. For that reason, I do not use airline and hotel co-branded cards for everyday spending.* Instead, I suggest using cards that earn transferrable points such as Chase Ultimate Rewards or Amex Membership Rewards for your regular spend.
*Remember, there are always exceptions. Depending on your travel goals, it could make sense to continue to use an airline or hotel card for everyday spending if you’re after a certain award currency. This is especially true if the award currency you’re trying to collect for a certain redemption is not a transfer partner of Chase Ultimate Rewards or Amex Membership Rewards.
So the next question I get is “but what if I only ever use one particular airline?”
First of all, if your goal is free travel, you shouldn’t be focused on just one airline. I happen to fly American Airlines often because our home airport is DFW and DFW is an American Airlines hub. But just because we fly American Airlines a lot does not mean I should only earn American Airlines miles.
Sometimes another loyalty program charges significantly less miles for the exact same AA flight. For example, a direct flight from DFW to Puerto Vallarta is 25,000 or 30,000 AAdvantage miles roundtrip (depending on peak and off-peak dates) in economy. I can transfer Ultimate Rewards points to British Airways and book the exact same AA flight for half of that amount. You can read more details here.
- Since American Airlines and British Airways are both in the Oneworld alliance, I can also use British Airways Avios (their name for miles) to book AA flights.
- British Airways has a distance-based award chart, and any flight under 1150 miles in distance is 7,500 Avios each way or 15,000 Avios roundtrip. DFW-PVR is less than 1150 miles, so the cost of this flight is only 15,000 Avios! That’s half of what AAdvantage charges.
- I’m not saying collecting British Airways is the answer either, because there will be routes where AAdvantage is the better program.
Another reason why you shouldn’t only earn miles with one program: AVAILABILITY!
I’ve written about this before, but airlines do not have an unlimited amount of award space. Just because there are open seats for revenue tickets does not mean that a seat is available on miles. Airlines limit the amount of seats that you can book with miles. Once those seats are booked, you can either pay a ridiculous amount of miles (which I do not recommend because it is never a good value) or you may not be able to book with miles at all. Some airlines may open more award space as the departure date approaches, but this is never a guarantee.
If you only have miles with one airline, and there is no award space with that airline and/or their partners for your dates and destination, you’re out of luck. But if you have miles that are transferable to multiple airlines, you can check other airlines for availability. You can read more about award space here.
The SPG Amex (A hotel credit card) is an exception (until August 1, 2018)
Some hotels allow you to transfer points to an airline, but it’s such a horrible ratio that it’s not even worth discussing, but Starwood is an exception. Starwood points can be transferred to several airlines at a 1:1 ratio. To make this deal even better, you also get a 5,000 mile bonus for every 20,000 SPG points transferred to air miles.
Here’s another unique situation with SPG: in 2016, Marriott acquired SPG but their loyalty programs will operate separately until August 1, 2018. Currently, you can transfer points between the two. The ratio is 1:3 (1 SPG point=3 Marriott Rewards points, 3 Marriott Rewards points=1 SPG point). Note that this is a unique situation due to the merger and you cannot normally transfer hotel points between different hotel programs.
On August 1, any SPG points you have will be converted to the new currency (at the 1:3 ratio) and SPG and Marriott will operate as one program.
Some details about the new program have now been released. You can read more about that here. The short version of the airline program is that it is remaining the same, but changes to the SPG credit card result in a devaluation of the amount of points earned per dollar. For that reason, I do not suggest using the SPG card for everyday spending after August 1, 2018.
My most valuable redemptions happened as a result of transferring Chase Ultimate Rewards, American Express Membership Rewards, or Starwood Starpoints (RIP) to airlines and/or hotels
- American Express Membership Rewards has 16 airline partners and 3 hotel partners. The ratios vary, but many are 1:1. Amex also offers occasional transfer bonuses to certain programs meaning the ratio is sometimes better than 1:1! Click here for transfer instructions.
- Chase Ultimate Rewards has 9 airline partners and 4 hotel partners. You can transfer Chase UR to any of these partners at a ratio of 1:1. Click here for transfer instructions.
In addition to transferring these points to airline and hotel partner loyalty programs, you can also use your points to book travel through the travel booking portal. Basically, this means you’re using your points as cash to book. You can read more about that here. Transferring to partners is usually going to be a better value than redeeming through the booking portal. I’ll go into some math in my post about cash back cards to prove how valuable it can be to transfer to loyalty programs.
Airline and hotel co-branded cards are great for sign-up bonuses, especially if you’re over 5/24. But for everyday spending, I prefer credit cards that earn transferrable points.
There are certainly scenarios when it makes sense to put spend on an airline or hotel credit card even after earning the sign up bonus. For example, if you want to earn the Southwest Companion Pass, you should use Southwest credit cards until you earn the points required for the pass. The right credit card (s) for you will depend on your travel goals!
In addition to the ability to earn miles and points, airline and hotel co-branded cards also come with benefits. Some of these benefits may be valuable enough to pay the annual fee to keep the card open even if you take my advice and do not use it for spending.