How Do Travel Credit Cards Work?

You’ve probably heard of travel credit cards or travel rewards cards, but you may not be clear on how they work. These cards pay you points or miles for making both travel purchases and everyday purchases. Once you accumulate enough points or miles, you can redeem them for rewards like flights and hotel stays.

If you travel often, one of these cards can be a smart financial tool. Thinking of applying for a travel credit card? Here are the basics of travel credit card rewards to get you started.

Travel-specific credit cards work similarly to any other rewards credit card: When you make charges, you earn currency at different rates that can be turned into rewards.

Currencies vary from card to card, but are generally called "points" or "miles." For example, most airline cards pay miles in that airline’s loyalty program. Hotel credit cards and general travel cards usually pay you with points. Both types of currencies are redeemable for travel and other rewards.

Typically, a travel credit card will pay you extra in its currency when you use the card to purchase travel, but rates vary. One card might offer you 2 points or miles per $1 spent on airline purchases, while another might offer you 3 points or miles per $1 spent on airline purchases.

Many travel rewards cards also pay points or miles on everyday non-travel purchases, but usually at a lower rate — for example, only 1 point or mile per $1 spent.

» Learn more: The beginners guide to points and miles

These are some common types of travel points credit cards.

Airline credit cards

Airline credit cards pay miles in the loyalty program of a particular airline, which you can redeem for flights or upgrades. The card may also come with additional perks, like priority boarding and a free checked bag.

Typically speaking, the higher the annual fee, the more built-in travel benefits you can expect from the card.

• Example airline credit card: United℠ Explorer Card.

Hotel credit cards

Hotel credit cards focus on a particular hotel group’s loyalty program, and you’ll earn more points when making purchases at participating hotel properties. You can redeem points for free hotel stays or room upgrades.

Your card might also come with perks like a free night each year you carry the card or automatic elite status in the hotel’s rewards program.

• Example hotel credit card: Marriott Bonvoy Boundless® Credit Card.

General travel cards

There are several general travel credit cards that offer greater flexibility in how you spend your rewards. With these, you earn points for everyday spending, plus bonus points for spending in specific categories, like dining, travel or groceries. Your points are redeemable for flights, vacation packages, rental cars, hotel stays and more. Some of these cards allow you to transfer your points directly to hotel and airline loyalty programs, too.

• Example general travel card: Chase Sapphire Preferred® Card.

Flat-rate credit cards

Flat-rate travel credit cards are simple and easy to use. You’ll earn a certain number of points or miles on every purchase, and there are no spending categories to keep track of, and it’s less confusing to earn rewards.

• Example flat-rate travel rewards card: ​​Capital One Venture Rewards Credit Card.

Premium travel cards

Some travel cards offer premium perks. They’re designed for the frequent traveler who wants access to more benefits. These cards often have higher annual fees, but the perks can be worthwhile, and they may earn at a higher rewards rate.

• Example premium travel card: The Platinum Card® from American Express.

» Learn more: The best points and miles credit cards for beginners

Some of the most popular travel credit cards offer several added benefits, like:

• No foreign transaction fees: Some credit cards charge foreign transaction fees when making purchases in other currencies while abroad, others do not.

• Trip cancellation or trip delay insurance: Your trip may not go as planned. A card with built-in travel insurance can reimburse you when your plans change due to qualifying reasons.

• Baggage delay or lost baggage insurance: Travel credit cards may include coverage for baggage interruptions. This way, if your bag is lost or delayed for a lengthy time, you can purchase toiletries and/or clothing and get reimbursed.

• Travel credits: A travel credit card may come with travel credits, which allow for a specific dollar amount of travel expenses to be offset by a statement credit.

• TSA PreCheck/Global Entry application fee credits: Some travel cards offer application fee credits for TSA PreCheck or Global Entry. If you use your card to pay these application fees, you can earn statement credit for reimbursement.

• Airport lounge access: Some premium travel credit cards include airport lounge access. This gives cardholders the ability to relax in a participating airport lounge before their flight.

Cardholders collect points or miles until they're ready to redeem them for rewards, and redemption options will depend on the card that you have. You can generally redeem travel credit card rewards for flights, hotel stays, vacation packages and more.

Several credit card issuers deposit miles or points directly into your account with the accompanying airline or hotel loyalty program, whereas other credit card issuers host their own online shopping portal for travel rewards.

» Learn more: 5 steps to get started with rewards travel

A few credit card issuers will let you transfer your points to partners, which can include other airlines, hotels and car rental agencies. In most cases, you start at the card issuer’s online portal to transfer these points. Once your points have transferred to another loyalty account, you can book award travel directly through the hotel or airline loyalty program. In general, these types of points give you more flexibility for redemptions.

Some programs also let you redeem points and miles for gift cards, complementary travel experiences, cash back or a statement credit, but these choices typically don't offer the best value for your points.

Examples of how redemptions and earning rates vary

Here are just a few examples of some of the variances you'll find across travel credit cards:

• Chase Sapphire Reserve®. You can use your Chase Ultimate Rewards® points to book travel on Chase's travel portal or you can transfer your points to one of over a dozen partners. The points typically have a higher value when they're redeemed on the website.

• Southwest Rapid Rewards® Plus Credit Card. While you can earn Rapid Rewards points with several Southwest partners, you can't use your Rapid Rewards points to fly other domestic airlines.

• IHG One Rewards Premier Credit Card. With this IHG card, you can earn 26 points per dollar spent at participating IHG hotels, but will only earn 5 points per dollar spent on gas stations, travel and restaurants. All other purchases earn 3 points per dollar.

» Learn more: 10 worst travel credit card mistakes

There are many travel credit cards available. When choosing any financial product, always consider your personal goals and purchase habits. This can help you narrow down the right product for you.

Here’s what to look for when comparing travel credit card options:

• Bonus offer: Many credit cards offer a sign-up bonus to new cardholders — usually a chance to earn a large number of bonus points after spending a certain amount on the card in the first few months after opening the account. Compare these offers and their points value before choosing a card.

• Earning potential: Not all travel credit cards offer the same earning potential. Look to see how each card rewards points or miles, and don’t forget to consider purchase categories. Also, check to see if the earning potential is unlimited, as you'll want to maximize your earning potential. For some, choosing to get a flat-rate travel credit card may work best.

• No foreign transaction fees: If you travel internationally, check to see if the card charges foreign transaction fees. This way, you don’t get charged extra fees when using your card.

• Perks: Extra travel benefits, like priority boarding for your flight or a welcome gift at your hotel can make your travels more enjoyable.

• Annual fee: Some travel credit cards charge an annual fee, others don’t. It’s essential to understand the annual fee before applying for a credit card to make sure you can comfortably afford it. Travel cards with more perks may have a higher annual fee.

» Learn more: Are travel credit cards worth it?

You have several excellent options to choose from when deciding which card to get, like:

• Flexibility, point transfers and a large bonus: Chase Sapphire Preferred® Card.

• No annual fee: Wells Fargo Autograph℠ Card.

• Flat-rate travel rewards: Capital One Venture Rewards Credit Card.

• Bonus travel rewards and high-end perks: Chase Sapphire Reserve®.

• Luxury perks: The Platinum Card® from American Express.

• Business travelers: Ink Business Preferred® Credit Card.

• Airline credit card: Delta SkyMiles® Gold American Express Card.

• Hotel credit card: World of Hyatt Credit Card.

For more details, plus other highly recommended cards, see NerdWallet’s 15 best travel credit cards.

Now you know how travel credit cards work. They can be very worthwhile — after all, you may as well earn rewards for travel purchases and other expenses that you’re already charging to your card.