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Credit Card Loyalty Programs: 3 Things You Ought to Know

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Credit Card Loyalty Programs: 3 Things You Ought to Know

You sit down at your computer, co-branded credit card in hand, prepared to redeem your hard-earned miles for the first time. But when you log in to your account, you hit a wall. Maybe you can’t figure out how much a point is worth, or why some members get special benefits and you don’t.

Loyalty programs — programs from certain airlines and hotels that offer benefits to frequent customers — often have their own rewards currencies, rules and hierarchies. If you’ve signed up for a co-branded credit card but are baffled by the ins and outs of the loyalty program that goes with it, here are some things to consider:

1. Rewards often don’t have fixed values.

Most loyalty programs have their own currency — often, points or miles. While the industry standard for value is generally 1 cent per point or mile, some are worth much more, and others are worth much less. A lot depends on how the loyalty program assigns values to certain products. Here’s how some do it:

Distance. On some airlines, you pay a flat rewards rate for all trips within a certain region. American Airlines, which recently merged with US Airways, is the only major domestic airline that still offers these region-based rates, as of May 2015. To get the most out of your rewards, redeem points or miles for the highest-cost trip possible within a certain area – maybe, say, a flight from San Francisco to Washington, D.C.

Categories. Some programs assign rewards prices based on criteria aside from price. Hilton, for example, charges a certain amount of HHonors points for each stay based on hotel tier, instead of a room’s list price. Hotel tiers can be determined by many factors, including location and amenities offered. You can get more for your points by staying in low-tier hotels that charge high cash prices for rooms.

Cash value. Most loyalty programs let people redeem rewards based on the cash value of certain items. In this case, you’d have to shell out more rewards to purchase a plane ticket or hotel room in a certain price bracket, regardless of distance or other factors. These types of programs can make it more difficult to stretch your points and miles as far as possible.

Check out NerdWallet’s Reward Program Reviews for point valuations and redemption options.

2. Not all rewards help you earn elite status.

Many hotel and airline loyalty programs have an elite status, a kind of membership level that gives you extra benefits, such as access to airport lounges and free upgrades. While some hotel co-branded cards come with automatic elite status, getting these extra benefits isn’t so easy with most offers.

Generally, you can earn your way to the next level with enough qualifying miles or base points. You typically have to earn these the hard way — by racking up a lot of stays or taking a lot of flights.

Airlines and hotels often refer to rewards that don’t help you advance to a higher elite status as “bonus points” or “bonus miles.” These can often be purchased online (usually, for much more than they’re worth) or earned through bonuses and promotions. You can redeem them for free flights and stays, but beyond that, they don’t have much utility.

When you’re thinking about applying for a credit card and your primary goal is to achieve elite status, ask these questions:

  • Is the sign-up bonus giving you bonus points or base points? Bonus points usually won’t help you get to the next elite status level; base points will.
  • Does the card give you a way to fast-track to elite status? Sometimes, cards offer shortcuts for advancing to the next elite status tier. Certain cards may grant you automatic elite status outright.
  • Does this airline or hotel chain often give out limited-time offers? Many carriers and hotel chains offer seasonal promotions that make it easier to earn elite status. If they’ve given out great deals in the past, there’s a good chance they’ll do it again.

3. You may not be able to use all the rewards you earn.

If your loyalty program requires you to have a minimum number of points or miles before you can redeem them, it’s nearly impossible to cash in all the rewards you earn. And in some programs, those unspent points or miles may expire.

Some loyalty programs offer more flexibility. IHG’s Points & Cash option and British Airways’ part payment policy, for example, let you redeem rewards in smaller amounts and pay the difference in cash. If you’re frugal and don’t earn that many points to begin with, redemption options like these could help you get a lot more value out of your rewards.

Generally, you can find information about redemptions and expiration dates by reading the terms and conditions portion of your co-branded credit card agreement, which can be found on your issuer’s website.

Maximizing vs. just cashing in

Spending hours in front of a computer hunting for the best redemptions isn’t for everyone. If you just want to book a trip without the hassle, opt for a more flexible card, like a cash-back card, or a travel card with rewards that can be transferred easily or redeemed as a statement credit against travel purchases.

But if you get an adrenaline rush from squeezing more value out of your rewards, you may be able to save up for your next vacation even faster with a little strategizing. Loyalty programs can pay off in a big way — you just have to be willing to play the game.

What’s the most confusing thing about your co-branded credit card’s loyalty program? Tell us in the comments!

Claire Davidson is a staff writer covering personal finance for NerdWallet. Follow her on Twitter @ideclaire7 and on Google+.


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