How do travel credit cards work?

Travel credit cards offer rewards from spending, which you can redeem for travel-related perks, discounts and benefits. Saving up points or miles earned from your spending may even add up to a free flight or free hotel stay. If you're a frequent traveler or want to get a discount on your next big trip, using a travel credit card is a great way to earn rewards.

What are travel credit cards?

Travel cards work like many credit cards; they earn rewards in points or miles for every eligible purchase you make with the card. With certain cards, you can redeem these rewards in standard ways such as cash back and statement credits. However, travel credit card rewards are usually redeemable for travel-related items, including airline tickets and hotel stays. Last but not least, many travel credit cards allow you to earn points for your travel-related purchases at a better rate than other purchases.

There are three basic types of travel credit cards: co-branded airline cards, co-branded hotel cards and cards that offer you points for travel-related spending across many brands.

Hotel co-branded cards

Hotel co-branded credit cards are affiliated with a specific hotel chain and offer rewards through a brand loyalty program. These cards allow you to collect points from your stays at a specific hotel chain and then redeem these points for a discounted night or free stay. Hotel cards could also offer additional perks and benefits that you can enjoy during your stay, such as room upgrades, complimentary breakfast, hotel lounge access and late checkout. If you have a favorite hotel chain, then a hotel credit card may be right for you.

Airline co-branded credit cards

Credit cards co-branded with an airline allow you to earn miles when flying with that airline. Once you have saved up enough airline miles, you can redeem them for a free plane ticket or discounts on flights. Airline credit cards may offer cardmembers additional travel perks, including free checked bags, priority boarding, airport lounge access and in-flight discounts. If you're loyal to one specific airline, an airline credit card may offer you rewards and benefits to enrich your time in the skies.

General travel cards

General travel credit cards are not tied to any specific airline or hotel brand, so they offer flexibility when earning points and redeeming rewards. These cards can feature many benefits, such as bonus points for travel-related spending or annual travel credits. If you travel regularly without an airline or hotel preference, consider general travel credit cards. Their reward programs can appeal to the occasional traveler by offering the opportunity to earn points for travel expenses across different brands.

Benefits of travel credit cards

Sign-up bonus

Many travel credit cards include a sign-up bonus, also known as a new card member bonus. This allows cardmembers to earn reward points by meeting a spending requirement within the first few months of opening the account.

Depending on the card, these rewards could be in the form of points or miles. For example, a travel credit card may offer you 50,000 sign-up bonus points for spending $4,000 on your card in the first 3 months. To understand the value of your sign-up bonus, review the card's reward program to see how these points can be redeemed for travel benefits.

Annual travel credit or statement credit

Many travel credit cards offer an annual travel credit that can go toward travel-related spending. Purchases that fall into the travel spending category vary from card to card but may include hotel stays, airline tickets, car rentals and ridesharing services. Some travel credit cards instead offer an annual statement credit, which comes in the form of a posted credit to your account for qualifying purchases. It's one of the most coveted benefits of travel credit cards.

Airline travel benefits

Airline credit cards offer additional perks for cardmembers when they fly, such as free checked bags, TSA Precheck^®, lounge access, priority boarding and in-flight discounts. Airline credit cards may also have travel insurance and can reimburse you for unexpected costs such as damaged or lost baggage, flight cancellations and rental car damages.

Hotel stay benefits

Hotel credit card members can enjoy extra perks when staying at their hotel chain, such as room upgrades, late checkout and free breakfast. Many cards also offer a free night's stay after the annual anniversary of opening your account.

How do travel credit card rewards work?

Depending on your travel credit card, you can earn and redeem points or miles. Usually these rewards currencies are interchangeable. In addition, some travel credit cards may offer bonus rewards when you use your card on travel-related purchases.

Earning rewards

Travel credit cards can earn you miles or points for purchases and bonus points within certain spending categories. For instance, a travel credit card may offer 3x rewards on travel expenses like airfare and hotels or even dining at restaurants.

More specific types of travel cards have similar ways of earning miles or points. For example, a hotel co-branded credit cards could offer bonus points for using your card on-site at that hotel chain, such as the hotel's gift shop. Similarly, an airline credit card may offer bonus miles for the money you spend with that airline, including plane tickets and in-flight purchases.

Redeeming rewards

Cash and gift cards are common redemption options, even for travel credit cards. However, these cards usually have good travel-related redemption options, such as airline tickets, hotel accommodations, car rentals, activities and cruises. General travel credit cards are considered more flexible because rewards are redeemable with different loyalty programs.

Many cards also offer transferable rewards that can be used with any of the credit card company's travel partners. You may just need to redeem your rewards through the rewards program, as opposed to the hotels and airlines directly.

What to remember when using your travel credit card

When spending money on your travel credit card, try to stay within your budget, so you can afford to pay your statement balance in full each month, or at least the minimum payment. The rewards you earn with your travel credit card may not be worth accumulating debt and the interest charges or late fees that could come with it. Before signing up for a travel credit card, see if you're capable of meeting the sign-up bonus requirements, paying the annual fee and spending enough to earn the rewards in a realistic period of time.

The bottom line: Travel cards are built for all types of travelers

If you're loyal to one hotel brand or airline, a co-branded card will allow you to enjoy higher levels of perks. This type of card usually offers bonuses for spending within that brand and partner brands. The more you spend, the higher the loyalty status you could earn.

If you're indifferent about particular airlines and hotels, a general travel credit card might suit you best. After being approved for one of these cards, you could be enrolled in a rewards program with flexible travelrelated redemption options.

Are you in hotels for more than 20 nights each year? Do you fly at least 5 times a year? At the end of the day, the benefits of travel credit cards are geared towards people who travel. If so, the convenience of travel credit card perks combined with the bonus points from travel spending may make a travel credit card a must-have.