Credit Card 101: Part 2 Choosing the Right Credit Card(s) to Maximize Reward Points

Learn how to choose the right credit card to maximize your reward points. And maximizing points for flights, hotels, and more!

Overview

Welcome to Part 2 of our Credit Card 101 series. If you’re a complete beginner to the credit card world, we strongly encourage you to start with our Part 1 series on Understanding the Basics of Credit Cards. If not, let’s continue to embark on the journey to rack up those reward points and get one step closer to booking your next aspirational trip. This article will discuss choosing the right credit card(s) to maximize reward points. Additionally, we will conclude with a dedicated section on Specialty Cards, highlighting their crucial role in providing significant benefits for personal use that extend well beyond everyday spending.

Access Your Spending Habits & Everyday Spending Strategies 

Understanding your spending habits is crucial when choosing from the myriad of reward points credit cards, each tailored to specific spending patterns. Your spending might look something like this: rent, dining, food, gas, travel, and other miscellaneous items. To get a more accurate depiction of your spending, we strongly recommend tracking your monthly spending to identify your top categories.

Let’s say your top spending category is dining, which we’ll be using this example for the rest of this article. To maximize your reward points, you should look into cards that can maximize your points earned for restaurant spending. For us, we usually go with Amex Gold or Chase Freedom Unlimited.

Reward Rates

The next step is straightforward: find the best card for maximizing rewards in a specific category and compare the percentage of points offered for your spending. 

Continue with the previous example with dining, the top cards that offer the highest percentage back include:

• Citi Custom Cash – 5% back on your top eligible spend category up to $500 spent each billing cycle (in this case, dining)

• American Express Gold – 4% back on dining 

• Chase Freedom Unlimited, Chase Freedom Flex, Capital One SavorOne – 3% back on dining

This initial filter greatly narrows down the scope of your research. 

Evaluate Annual Fee

With a higher reward rate, sometimes it comes at a cost: Annual Fee. As we discussed in Part 1 of this Credit Card 101 series, an annual fee is a fixed cost billed by credit card issuers once a year for the privilege of using their cards. 

While some people will gladly pay the fee for the perks, others are deterred by the annual fee. The best practice is to refer to your spending habits to calculate the effective annual fee and make an apple-to-apple comparison to a non-annual fee card.

An effective annual fee refers to the actual cost of the card after accounting for the value of the benefits and rewards that the card offers. When calculating the effective annual fee, we usually take a conservative approach, only including statement credits that are within your common spending categories and excluding other benefits that can’t be easily redeemed or used. 

Using the example above, among the list of cards, American Express Gold is the only one with an annual fee of $250 per year. To calculate the effective annual fee:

$250 Annual Fee

– $120 dining credit ($10/month) 

– $120 Uber Cash ($10/month) – Uber Eats or Uber rides

= $10 Effective Annual Fee

So effectively you are paying $10 a year for 4x back on dining and grocery, as well as the ability to transfer points to travel partners on AMEX.

Sign-Up Bonus

Sign-up bonus can significantly enhance the value you receive from a credit card, especially in the initial stages. It usually comes in 2 forms:

1. X amount of points/miles after Y amount of spend within Z months

2. X amount of free hotel nights after Y amount of spend within Z months

We recommend doing a Google/Reddit search to see the historical pattern of sign-on bonuses for the card(s) of interest. Another important tip is to check the sign-up link on different browsers (Safari, Chrome, Firefox) and browser modes (incognito). Sometimes referral links will also give elevated offers. This should further narrow your search down to that last card that fits all your criteria. Last note: bigger sign-up bonuses usually come with a higher minimum spend requirement, so plan large purchases around the time you open the card.

Specialty Cards – Hotel & Airline

Not all credit cards are optimized for everyday transactions; there are specialized credit cards designed to offer significant benefits tailored for specific personal use. The cards under this category are Hotel and Airline credit cards. The process of choosing the right specialty card(s) is slightly different from a daily spender card:

Choosing the right branded card: Regarding specialty cards, we have different approaches for airline versus hotel cards. 

For airlines, we recommend getting the card if:

1. You fly frequently with the airline and can benefit from the credit card perks such as upgraded status, free checked bags, and priority boarding.

2. The airline miles are not easily obtainable from major credit card issuers. Alaska Airline Visa Signature and AAdvantage are two popular airline cards since their miles are extremely valuable for booking award flights.

For hotels, one big difference is that you don’t have to be loyal to a brand to get their card. This is because hotel cards are usually considered as keeper cards, where you receive a free night certificate every year you hold the card, which often is worth more than the annual fee. Of course, if you already find yourself visiting a brand often, then getting their branded card is a no-brainer, as it will give you additional qualifying nights that count towards hotel status.

Typical hotel and airline benefits include:

1. Earn higher earnings rate since cards tied to specific hotel chains or airlines typically offer higher points or miles per dollar spent on purchases with those brand

2. Accelerate your progress towards elite status and unlock additional benefits within the loyalty program if you’re already a member of the hotel or airline loyalty program

3. Redeem points with ease, as those earned with a co-branded card are often simpler to use for the associated brand’s services without complex transfers or devaluations.

Evaluate Annual Fee: When evaluating the annual fee of a hotel or airline credit card, calculate the effective annual fee by considering the additional benefits provided. Unlike daily spender cards, specialty cards offer perks such as lounge access, annual free night(s), free checked bags, hotel status, and travel protections that are particularly valuable to you. Subtracting the value of these benefits from the annual fee gives a clearer picture of the card’s true cost. This method ensures a fair comparison between cards with and without annual fees, highlighting the true value of the added perks aligned with your specific travel preferences.

Sign-Up Bonuses: The sign-up bonuses for specialty cards come in the form of miles/points or free night certificates. Sometimes these sign-up bonuses can be compelling enough to be the sole reason to get the card. For instance, for our 2023 London trip, we utilized the Marriott Bonvoy Boundless card’s sign-up bonus of 5 free night awards, covering a 4-night stay at the London Bankside Autograph Collection Hotel.

Now that you have a great understanding of the basics of credit cards as well as the proper tools and process to go about choosing the right credit card(s) to maximize your reward points, this information should be more than enough to propel your credit card journey to the next level. To conclude this Credit Card 101 series, we will end with some tips for effective credit card usage as well as explain some essential credit card lingos. 

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