The offers on this page are from advertisers who pay us. That may influence which products we write about, but it does not affect what we write about them. Here's an explanation of how we make money and our Advertiser Disclosure.

How do travel credit cards work?

Kendall Little
ยทSenior Writer, Credit Cards
Updated 11 min read

Whether you want big travel savings, luxury perks, or just an easier time getting through the airport, you can get more out of your next vacation with the right travel credit card.

But to maximize their high rewards value, itโ€™s important to understand how travel cards work, including rewards programs, which may have complicated restrictions and strategies for optimizing how you earn and redeem points and miles.

And thatโ€™s before even getting into the long lists of added benefits and perks.

To help you get started, hereโ€™s a look at how these cards work โ€” and how you can get the most from your spending and travel โ€” before you sign up.

Travel cards are a type of rewards credit card. Youโ€™ll earn rewards on your spending in the form of points or miles. Purchases within designated bonus categories earn more rewards, and redemptions are most valuable toward travel.

Travel credit cards also come with added benefits and perks like access to airport lounges, travel insurance, or annual travel credits. The most valuable benefits and perks are generally reserved for cardholders paying the highest annual fees. A $500+ annual fee may sound exorbitant, but for some travelers can offer double or triple that amount in savings on purchases they would have made anyway.

Of course, most people probably donโ€™t travel enough to justify that type of very high annual fee. There are plenty of great travel credit card options you can use to save on travel with more attainable fees under $100 or even no fee at all.

Compare these different types of travel cards to find the one that works best for your spending and travel goals.

General travel credit cards earn points and miles you can redeem through your issuerโ€™s rewards program. You might also think of them as flexible travel rewards cards. These are cards that earn American Express Membership Rewards points, Chase points, Capital One Travel miles, and Citi ThankYou points, among others.

There are a number of ways to redeem your flexible points and miles: booking travel through the programโ€™s travel portal, transfers to partner airlines and hotels, statement credits, online purchases, and more. Flexible travel cards may also come with a number of added perks and benefits, such as annual statement credits toward travel, discounts with partner brands, travel insurance and protections, and more.

There are plenty of reasons you may be loyal to one airline; maybe you live in a specific airlineโ€™s hub city, or you have elite status that awards you extra perks when you fly. If youโ€™re looking for a credit card to help you go farther with your favorite airline, consider a co-branded airline card.

Airline credit cards earn miles toward the airlineโ€™s loyalty program, such as Delta SkyMiles, Southwest Rapid Rewards, United MileagePlus, and more โ€” with higher rewards earnings on purchases you make with the airline.

These cards often come with added benefits you can take advantage of when you fly: a free first checked bag, discounts on in-flight purchases, priority boarding, complimentary upgrades, boosted redemption value toward flights, and more.

Similar to airlines, travelers who prefer staying with a specific hotel chain could benefit from a hotel credit card. Youโ€™ll earn points toward the hotel loyalty program (such as Marriott Bonvoy, Hilton Honors, IHG One, etc.) when you make purchases with your card.

Hotel credit cards can offer a lot of value for travelers during a stay, too. Many of these cards offer annual free night awards, room upgrades, early check-in/late checkout, discounts during your stay, and more.

You can find premium travel credit cards within any of the above types, but thereโ€™s a lot that can set them apart as well. These cards have very high annual fees, with the valuable benefits and rewards to match.

Premium cards are typically geared toward frequent travelers, with boosted rewards on travel spending. The added benefits, too, may be most valuable for frequent jetsetters โ€” generous annual credits to help offset the annual fee, automatic elite status, companion certificates, and upgrades, among many others.

Just remember: These cards arenโ€™t for everyone. If the rewards and benefits donโ€™t offer significant savings on purchases you would have made even without the card, you may be better off with a lower-cost travel card option.

Over the long-term, spending within bonus categories is the best way to earn travel rewards with your card. These categories can vary, but they often fall into one of two categories. As youโ€™re comparing cards, it may help to think about your choice this way.

Would you rather:

  • Earn the most rewards on your everyday spending to redeem toward future travel? You can use your frequent purchases made at grocery stores, gas stations, restaurants, and more to collect travel rewards points. Some travel cards even offer fixed rewards on every purchase.

OR

  • Earn boosted rewards on travel purchases to put toward future travel? Youโ€™ll earn the most on purchases you make directly with airlines, on booking travel within the credit card issuerโ€™s travel portal, and other general travel spending.

Think about your budget and where you spend the most money. If everyday essentials make up the biggest portion of your monthly budget, the former may work best for you. But if you tend to stay frugal in day-to-day life while you save toward your travels, it could make sense to choose the latter.

Thereโ€™s a good rule of thumb that can help you when itโ€™s time to redeem your points or miles: Travel credit card rewards are most valuable toward more travel.

Many cards offer multiple travel redemption options, though โ€” and even more ways to redeem that may be valuable over time.

Booking award travel with your points and miles is a great way to redeem general or co-branded travel rewards.

If you choose this redemption option, youโ€™ll need to book your travel through your cardโ€™s rewards program. If you have an American Expressยฎ Gold Card, for example, you would book using your points through American Express Membership Rewards. If you have a Marriott Bonvoy Boundlessยฎ Credit Card, on the other hand, you would use the Marriott Bonvoy portal on Marriottโ€™s website.

Redemption value varies, but you should pretty much always aim to get at least one cent per point or mile. Some programs offer fixed rewards values, where 10,000 points, for example, may be worth $100 toward travel. But others have dynamic pricing, where the same 10,000 points could be worth $100 on one booking, but closer to $150 on an off-peak travel day or at a different hotel property.

The best way to maximize this redemption is by staying flexible; you can browse different dates, times, and carriers to find the best option for the points or miles youโ€™ve earned.

This can be a great redemption choice if you already have status with a specific airline or hotel but you have a general travel rewards card. Even if you donโ€™t regularly travel with a certain airline or hotel, transferring points may help stretch your rewards farther, depending on your travel plans.

When eligible, your points or miles will generally transfer to partners at a 1:1 ratio. But keep an eye on your account: Some issuers occasionally offer limited-time boosted rates with certain partners.

Most travel credit cards do have other, alternative redemption options โ€” but youโ€™ll sacrifice some value when you go this route.

Potentially lower-value redemption options include using points to make purchases online, cash back via mailed check or bank deposit, statement credits to your account, gift cards, charitable donations, and more. In some cases, you may redeem for up to 1 cent per point or mile, but youโ€™ll likely get a lower redemption rate.

If you frequently opt for one of these redemption options, a travel credit card may not be the best fit for you. Consider other rewards credit cards, like a cash-back card, that can offer a better on your spending in the form of cash rewards.

You already know you can use a travel credit card to earn and redeem rewards for travel, but thatโ€™s just the beginning of all your card has to offer. Follow these tips to maximize your travel card so it works best for you.

Travel credit cards have some of the highest-value welcome offers of any credit cards available today. These bonuses require you to meet a minimum spending threshold within a certain amount of time. If that required amount isnโ€™t within your regular budget, you may need to strategize.

Consider timing your application around a planned big purchase, so you donโ€™t risk racking up balances you canโ€™t afford.

For example, maybe you have a sinking fund of savings dedicated to holiday travel each year. Before you book travel for the upcoming holiday season, apply for your travel credit card and use it to secure your flights and hotel. Youโ€™ll get closer to earning the welcome bonus, and you can use the money youโ€™ve already saved to pay it off when your statement balance is due.

Before committing to a travel rewards card with an annual fee, ensure its value outweighs the cost.

For example, maybe your card has a free checked bag benefit valued at around $60 per round-trip flight. This can add up over the course of a year โ€” but if you always bring carry-on luggage and dislike waiting at baggage claim, itโ€™ll hold little value for you.

Alternatively, if one of the highest-earning bonus categories is rideshare services, but you rarely take Uber or Lyft, you may not be able to fully maximize your rewards.

If youโ€™re not getting at least as much out of your cardโ€™s rewards and benefits as youโ€™re paying to own it, then itโ€™s probably not worth it.

Weโ€™ve gone over a few of them already, but the added benefits offered by travel cards are one of the best ways to save money year after year.

In fact, your card may have more perks than youโ€™re even aware of. Issuers often change benefits or add new perks, so check your card account regularly.

Here are a few common benefits to know:

  • Annual credits: These can come in many variations across different travel cards. You might get annual credits for specific airline incidentals, free award nights at a hotel, or even general travel expenses. Some travel cards also carry annual credits for membership or subscription fees with non-travel partner brands, like rideshares, fitness clubs, or delivery services.

  • Travel insurance: Travel insurance may not be the most exciting benefit, but it could end up being most valuable. Common protections include trip delay, interruption, and cancellation coverage as well as primary or secondary car rental insurance. Make sure to read your card agreement to understand the full extent of your coverage and eligibility.

  • TSA PreCheck/Global Entry credit: These known traveler programs can help expedite your time in long lines at the airport. And theyโ€™re free for frequent travelers with travel rewards cards that carry a fee credit every four years for either TSA PreCheck or Global Entry.

  • No foreign transaction fees: Travel credit cards often waive this common fee that can add 1%-3% in added costs on purchases you make abroad. If your card has no foreign transaction fees, use it when you spend money outside the U.S. or even when shopping online with an international merchant.

Travel credit cards can be worth it whether youโ€™re a biweekly business traveler or only fly once per year during the holiday season.

But it can take some time to find the right travel credit card that works best for you. Before you apply, research different rewards programs, decide how you prefer to earn and redeem your rewards, and think about what benefits are most valuable to you.

No matter how high or low the annual fee is, you should also get enough value back to more than offset that cost each year โ€” so youโ€™re not spending more than you receive in return. Be careful to avoid any card that may encourage you to overspend just to take advantage of benefits; high interest debts can be much more costly than any potential rewards.

Another thing to keep in mind: Travel credit cards often require excellent credit to qualify. If your credit score isnโ€™t in great standing right now, you may not get approved for a travel credit card. Take time to build your score by practicing good credit habits (paying bills on time and in full, keeping credit utilization low, etc.) before you apply.

Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bankโ€™s website for the most current information. This site doesn't include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.