In response to a recent question on a blog post about a credit card offer, I decided to take a stab at writing up a very high-level introduction of how airline miles, hotel points, and bank points work as a way to fly, stay, or otherwise travel for free or almost free.
This post is essentially a stream-of-consciousness output, which I will try to refine and improve periodically.
About Credit Cards and Signup Bonuses
- The fastest way to earn large quantities of airline miles, hotel points, or points in other points programs administered by various banks (Citi, Chase, Amex, etc) is by signing up for a credit card and spending the minimum amount required by the bank to earn a signup bonus for that particular card.
- Hundreds of credit cards are available to U.S.-based customers, from several different issuers such as Amex, Citi, and Chase.
- Many credit cards offer signup bonuses in the form of points or miles that are very lucrative -- often $500-600 and sometimes even $1,000 or more. However, many cards offer mediocre (hello, $20 gift card or free turkey!) or even no signup bonus at all; buyer beware!
- Some credit cards are marketed as personal credit cards and some are marketed as business credit cards. Regular individuals qualify to apply for and use business credit cards; a business tax ID number is NOT required. Personal cards are not better or worse than business cards; the existence of both types of cards simply provides more choices for people who are looking to earn more miles and points. One characteristic of most business credit cards is that most do NOT show up on the person's personal credit report. This means credit score is not impacted temporarily, as it would be for a personal credit card application. It also means that other banks do not see the card account on the customer's personal credit report, which may allow the customer to sign up for more cards -- because certain banks restrict card approval based on how many cards a customer has opened recently from ANY card issuer.
- Most credit card signup bonuses require somewhere from $1,000 to $5,000 in purchases during the first 3 or 4 months owning the card. Some cards require just one purchase. This varies by card and by offer (example: one offer for the same card may require $5k spend, while another offer for the same card may require only $3k spend).
- Different signup bonus offers may be available for the same credit card at any one time. Also, signup bonuses vary over time for the same card. For example, the Delta Reserve for Business Amex card has a 70,000 mile signup bonus as of a couple weeks ago. For a few months prior, the signup bonus was 40,000 miles. Earlier this year, the signup bonus was only 10,000 miles. When signing up for a new credit card, make sure you are getting a historically good signup bonus! If you aren't sure, please ask me and I can help!
About Frequent Flyer Miles and Other Travel Points Programs
- Each airline runs its own frequent flyer program. Instead of paying for a flight with dollars (by booking direct with the airline, or booking thru Expedia or other travel websites), people can 'pay for' flights using airline miles.
- In the same manner, people can pay for hotel room stays using hotel points rather than dollars. Each hotel chain (Hyatt, Marriott/Starwood, etc) runs its own points program
- Bank points - such as Membership Rewards points from American Express, Ultimate Rewards from Chase, and ThankYou Points from Citi - also can be used to book travel using points instead of using dollars.
- Bank points can be used by logging into the customer's account with the travel portal website that the bank operates. There, the customer can search for flights, hotels, rental cars, etc - and can book a flight using the points instead of paying with dollars. Bank points are generally worth 1.25 to 1.5 cents per point - so a $300 flight could be booked by using 20,000 to 24,000 points instead of $300.
- Each airline's frequent flyer program (Delta SkyMiles, American AAdvantage, United Mileage Plus, etc) - and therefore its particular miles 'currency' - is separate.
- Customers cannot transfer miles from one airline program to another.
- Nor can they use miles from one program to book flights on another airline - unless the two airlines have a business arrangement to allow this. These partnerships and/or alliances are common, but the domestic U.S. airlines do NOT have partnerships with one another. So you cannot book a flight on an American Airlines plane and pay for it with Delta SkyMiles, for example.
- All points and miles are NOT created equal. One Delta mile is not worth the same as one Southwest mile. Likewise, one Hilton point is not worth the same as one Marriott point. Each company sets up its own pricing structure for how many points or miles it costs to book free flights or free hotel stays. And there's also an element of personal preference as well; one person may value Delta miles much more highly than another person, if the person has elite status with Delta and lives near an airport where Delta is the most prominent carrier.
Slightly Advanced Topics
- Bank points have another use, which can be confusing to newbies: they can be converted into miles or hotel points in specific programs. For example, Chase Ultimate Rewards points can be converted into United Airlines miles. Chase UR points also can be converted into Hyatt hotel points. By doing this, the customer then can book free flights with United Airlines, or free rooms with Hyatt hotels, directly with those companies. This is different than customers using the same bank points to book travel through the bank's travel website. Having two entirely different ways of using these types of bank points makes these points some of the most flexible and valuable forms of travel currency in the market.
- Reimbursable travel credit cards - Some credit cards that are 'travel rewards cards' work differently. Examples of these cards are Capital One Venture card and Barclay Arrival Plus card. The "points" that are earned by spending on these cards are NOT used to book free flights or stays up front; the points are used for reimbursement after the fact for travel that was booked using the credit card. These cards provide reimbursable travel against travel-related charges (rental cars, flights, hotels, etc) made with the card. Most cards like this earn "points" or "miles" that provide 2% value on charges. Signup bonuses are frequently in the range of $500-750 worth of free, reimbursable travel.
- Regarding airline alliances and booking flights with one airline using miles from a different airline's frequent flyer program: Customers can book a flight operated by one airline using miles in another airline's program. For example: book a flight on a Lufthansa plane and pay for it with United Airlines miles - because United, Lufthansa, and other airlines such as Air Canada and Singapore Air are part of an alliance - in this case, Star Alliance - that allows customers of one airline to use miles to book flights on flights flown by the other airlines' planes. These types of alliances exist because it extends the reach of each airline in the alliance and makes the frequent flyer miles of each customer more useful and flexible, regardless of which airline the customer's miles are with.
- Each airline sets its own price - expressed as the number of miles - for an award flight from point A to B. Most airlines publish an award chart, so customers can get an idea of how many miles it will cost - depending on time of year, availability, and other factors - to fly from A to B, and whether the price they see is a good deal. So the Lufthansa flight from New York to Munich might be bookable using Lufthansa miles for 30,000 miles each way, but United (a partner of Lufthansa's by virtue of both airlines' membership in Star Alliance) may be charging 40,000 miles each way for booking the same seat on the same Lufthansa flight.
- Customers are free to accumulate and use airline miles in programs that are operated by non-U.S. based airlines. For example, a customer who flies regularly on United planes in the U.S. may want to accumulate Singapore Air miles. Singapore Air is a Star Alliance member, along with United, Lufthansa, and others. Singapore Air miles can be used to book flights on United, Lufthansa, and other planes operated by airlines that are members of the Star Alliance. And Singapore Air charges fewer miles on many routes than United charges for the same flights - whether on United planes or Lufthansa planes or others.
- A great way to accumulate airline miles in non-U.S. based airline programs is by transferring bank points to the specific airline program. For example, the Singapore Air frequent flyer program accepts transfers of points from Chase Ultimate Rewards, Citi ThankYou, and American Express Membership Rewards at a 1:1 ratio (sometimes, transfer bonuses are offered too!). This means that it is very easy for someone who never flies on Singapore Air to earn many miles in that program by transferring bank points.
Category Bonuses
Category bonuses refers to the concept that different credit cards award more than the standard amount of cash back, miles, or points for a variety of reasons including:
- Shopping in certain categories
- Shopping at certain types of merchants
- Shopping at specific merchants
- Shopping during certain times of the year at certain merchants or merchant categories - aka rotating category bonuses.
Many credit cards earn just 1 mile or point per dollar on spending at grocery stores, while another card offers up to 4.5 points per dollar on the same grocery store spending. It doesn't take a genius to realize one can accumulate points WAY faster by earning 4.5 points per dollar instead of 1 point per dollar.
Build a Credit Card Portfolio
There is no single credit card that is best for ALL types of spending. See the Category Bonuses section above for more information.
The best way to get the most earnings from one's total credit card spend is by having a credit card portfolio to earn the most value out of each and every transaction.
An effective credit card portfolio can be as few as 2 cards. For some folks, it might be 5-6 cards.
Here is an article from the Award Wallet Blog that does a good job of explaining this topic. LINK. NOTE: The article uses the example of a specific points program - Chase Ultimate Rewards - and having people gear all of their credit card spend earnings toward a single program. It makes a lot of sense to consolidate reward earnings in one or a small number of programs, as it can be easier to redeem the points. However, this is NOT required and is not necessary. Many miles and points aficionados earn in dozens of different programs; in fact, it makes sense to have accounts in all major programs so that one can earn rewards in those programs whenever a stay, flight, or other activity pops up for that program.
Other Ways to Earn More Miles and Points
There are many, many ways to earn miles and points. This section warrants a separate future post, but for now here's some basic information.
If one is willing to put in a little effort, it is possible to earn several thousand additional points or miles per year by leveraging things such as:
- Dining rewards - earn additional miles by enrolling a credit card with an airline's dining rewards program
- Shopping portals - earn miles or points, or substantial cash back, by starting your shopping session at a portal rather than going directly to the merchant's own website.
- Promotions - hotel chains, rental car companies, airlines and other organizations run all sorts of promotions - either separately or in conjunction with other travel partner companies - to incentivize people to use their company's service. Keeping tabs on, and registering for, these programs on a regular basis is an easy way to earn far more than the average Joe on flights, hotels, and rental car activities.
