Beginner’s Guide to Rewards
Step One: Open a Points/Airmiles Earning Credit Card Account
So in order to maximize rewards, you need a card that earns you some kind of reward! For those new to this, there are two types: one type of reward earning credit card earns points or miles that are specific to one airline or hotel chain etc… an example of such a card would be the City Platinum AAdvantage card – it earns American Airlines miles on purchases you make with the card. The second type is a card that earns some kind of transferable points. These points are considered more valuable since they can be transferred from your credit card account to a variety of airline frequent flyer programs and hotel programs. Examples of this type of card would be American Express cards that accumulate Membership Rewards points or the Sapphire Preferred from Chase Bank which accumulates Ultimate Rewards points that can be transferred to a variety of airline and hotel partners.
The key advantage of a credit card that earns transferable points is that it provides some safety should a certain airline decide to devalue its frequent flyer points. You can choose to transfer your points to a different airline instead. But, some co-branded cards that collect miles for just one airline may sometimes give you more miles per dollar, especially if you use the card to buy tickets for flights on that airline. So it can depend on your personal spending habits which type of card gives you more value. As the Credit Shifu, I recommend that everyone should have at least one card that collects transferable points in their wallet, you can then open other cards to fit your spending habits or to take advantage of a sign up bonus…
Step Two: Look Out for Credit Cards With Big Sign Up Bonuses
In order to entice you to open an account, many credit card providers will offer a big sign up bonus as long as you spend a set amount on the card within a specific time frame, usually the first three months. These bonuses vary depending on the card, for example more entry level cards like the Chase freedom offer a 10k Ultimate Reward sign up bonus when you spend $500 in the first three months. American Express’ entry level Amex Everyday Credit Card offers a similar bonus when you spend $1000 in the first three months. These cards will usually offer some bonus when you add an additional user to the account i.e. order an additional card linked to your account to give to a family member to use.
Then more elite level cards such as the Chase Sapphire Preferred or American Express Platinum, have sign up bonuses of around 40k points. Depending on the airline you transfer the points to, that could be enough for a return trip from the US to Europe.
Sign up bonuses are a great way to kick start your points/miles earning project and also a great way for people who aren’t big spenders to earn rewards that would otherwise be out of their reach. Someone who opens one or two new credit card accounts per year could have enough for a free trip from the US to Europe for them and a loved one.
Step 3: Charge all your Purchases to your Credit Card
This one seems like common sense, basically if you have a points/miles earning card, use it! But you sometimes may overlook all the opportunities to use your card. For example I had a friend who lived in an apartment building run by a company with a very professional website and payment system, he was actually able to pay his rent on his credit card. Let’s say the rent was $1000 per month and the card earned one point per dollar, that is a guaranteed 12k extra points on top of points earned from regular spending per year!
However be aware that some more unusual uses for a credit card, such as paying rent or paying taxes may charge you a fee. If this fee is higher than the percentage of points you earn on each dollar, then it usually isn’t worth it. For example you pay a 3% fee, but only earn 1% back, you are down by 2%. The same goes for foreign transaction fees, which are often charged at between 2.7% and 3%. Unless you would have to pay the fee anyway because you don’t have cash, it isn’t really worth it to use a credit card.
Step Four: Sign up to Frequent Flyer and Hotel Programs
If you open a co-branded airline miles credit card, joining the airline’s frequent flyer program will be part of the application process. But if your card earns transferable points then you should research the card’s airline and hotel partners to find out which are appropriate for your travel needs. This may not always be as you would expect, for example if you live in the US, you may think that American Airlines frequent flyer program would be a better choice then British Airways’. However since BA and AA are both part of the One World Alliance, you can actually book AA flights through BA’s website using BA miles. What is more BA miles actually offer better value than AA miles do on short haul US domestic routes.
Understanding the advantages of different frequent flyer programs takes time and research, I will attempt to cover many airlines programs in future blog posts. For now the most basic thing you should know about frequent flyer programs is that there are three major airline alliances: Star Alliance, One World and Skyteam. If you have a frequent flyer account with one airline from each alliance you will have dozens of airlines from all over the world covered, since you can use the miles from that one airline to book flights on all other airlines in the alliance (sometimes with some restrictions). Likewise credit cards with transferable points will normally include airline partners from two, or even all three alliances.
If you want to use points for hotel stays, you should also open up hotel loyalty program accounts, these work in similar ways to frequent flyer miles, you earn when you stay at a hotel and you can also earn from co-branded credit cards and cards with transferable points.
Step Five: Shop Online at Points/Miles Malls
This may be news to you, but many airlines, banks and credit card companies operate online shopping platforms that allow you to earn higher amounts of points/miles. Normally, all these shopping platforms do is re-direct you to the websites of major retailers, such as Macy’s or Home Depot. Yet, similar to the way affiliate marketing works when blogs refer people to buy certain products and take a certain % cut from the merchant, the airline or credit card company is taking a cut for having referred you and they will share some of that with you in the form of bonus miles/points. Bonuese can be as high a 5% to 6% per dollar in addition to the miles you already earn on your card.
Here are a few examples of online miles/points malls:
(You will need a credit card or frequent flyer account with the relevant company to log in)
These are just a few examples, most major airlines and banks have such services.
These are five steps to get you on your way to earning rewards that can take you round the world in style. Please remember to spend responsibility on your credit card and don’t take on financial commitments you can’t afford. Paying interest of a credit card will generally wipe out a lot of the benefit of collecting points/miles.