When Do Hotels Charge Your Credit Card? [2022]

Are you trying to figure out when exactly the hotel is going to charge your credit card for your next hotel stay? Well, unfortunately the answer is not always so clear but we do have some guidance on how the process works.

In this article, I will break down what you need to know about how hotels charge your credit card. I’ll cover things like deposits, authorizations/holds, and give you some insight into what to expect.

When do hotels actually charge your credit card?

Generally, your credit card will be charged at the time of booking for prepaid stays and at the time of checkout for standard stays. If you have incurred any incidental costs, these will usually be charged at check out as well. But each hotel has their own way of doing things so the exact time your credit card is charged is often property specific.

Keep reading below to find out more about this sometimes less than straightforward process.

Tip: Use the free app WalletFlo to help you travel the world for free by finding the best travel credit cards and promotions!

Charge versus authorization

Before diving in too deep, it’s a good idea to clarify the distinction between a credit card “charge” and an “authorization.”

A charge is when your card is actually on the hook for the amount of the transaction, meaning that you are responsible for paying that amount.

An “authorization” (also known as a “pre-authorization,” “block,” or “hold”) is when funds temporarily become unavailable to you but you are not necessarily responsible for paying that amount.

If you have a credit card, an authorization means that your credit limit (or spending power) will be temporarily reduced by the amount of the authorization.

If you have a debit card then these funds in your bank account will not be accessible until the hold is released which typically can be higher consequence so be careful about using debit cards for your hotel authorization.

Deposit versus authorization

Some refer to a deposit and authorization as one in the same but these things are actually different.

Some hotels, often resorts, may require a deposit sometime before check-in. This deposit may or may not be refundable depending on your rate and the property. Often there is a deadline you can cancel prior to in order to guarantee a refund.

Sometimes the deposit amount is the same amount as the first night stay but other times it is an arbitrary amount.

As a practical matter, deposits are different from an authorization because if you never show up for the hotel stay, you can still get hit with a nonrefundable deposit. Meanwhile, the authorization likely will not take place until you check-in.

Why do hotels use authorizations?

Authorizations are meant to allow the merchant or hotel to guarantee that they will be able to charge a designated amount so that they do not run the risk of losing out on revenue.

It’s common with hotels, rental car companies, and other types of merchants like gas stations where the amount of the final transaction is not initially clear.

They might be annoying to deal with but if you think about why they are there it makes sense.

Let’s say that there is a traveler that has a credit card with only $20 available on it. If they ran up a hotel bill totaling $500 then the hotel would not have a way to recover the amount due at check-out.

However, if they did a pre-authorization of $500 they would be able to tap into that to cover the amount due.

What do the authorizations cover?

The authorization can be used to cover different types of charges.

For a non-pre-paid stay they can cover the amount of the hotel stay plus taxes. They are also commonly used to cover things like incidentals such as room service, entertainment, restaurant tabs, mini-bar purchases, unregistered pet fees, laundry, etc.

Some hotels also will rely on them to cover potential damage to a hotel room or theft of things like robes, linens, pillows, furniture items, etc. This may be especially true in destinations known for attracting partygoers like Las Vegas.

How much is the authorization for?

The amount of the hold or pre-authorization will be determined by the hotel.

If you did not pre-pay for your stay, some hotels may put a hold on your credit card for the amount of the entire stay plus taxes, plus a specific amount every night for the incidentals mentioned above. That amount could range from $20 to $200 per night or it could be a specified percentage of your expected bill.

Other hotels may put a hold on your account each night based on the amount that you are spending on the room rate or incidentals or a combination of the two.

Your best bet is to inquire about the authorization process to see how it will be calculated.

In some cases, you might be able to negotiate a lower authorization if you think the amount of the hold will cause issues.

How long will the authorization last for?

The hold or authorization on your credit card should be removed about 24 hours after check out. In some instances these holds like to hang around for a few business days so sometimes you do need to keep tabs on them.

Credit card holds in the hospitality industry can be placed for extended amounts of time such as up to 30 days!

Many times you may not even notice that there was a hold on your account unless you are paying close attention to your online bank activity.

Tip: You don’t actually have to pay for your hotel stay with the same credit card that you use for the hold/ authorization.

Different times you will be charged by the hotel on your credit card

There are six different “stages” of a hotel stay when your credit card might be charged by a hotel and they include:

  • Booking
  • Prior to check-in
  • Check-in
  • During your stay
  • Check-out
  • After check-out

Time of booking (pre-paid or nonrefundable rates)

Prepaid rates are usually discounted room rates that have the least flexible cancellation policy. Essentially, when you make your booking you are not allowed to cancel it without penalty (although in reality you often can make changes).

You can book these rates directly with the hotel but often you will find these with online travel agencies such as Expedia, Hotels.com, Booking.com, and others.

Typically, when you book a prepaid rate you will be charged immediately for the entire stay.

However, that is not always the case.

As confusing as it is, sometimes a hotel will not charge you for a prepaid rate immediately and may wait until a week before check-in to charge you. And in some cases, you may not even have to pay for a prepaid or nonrefundable rate until check-out (this tends to be an overseas thing).

Finally, you should note that sometimes an immediate authorization of a low amount such as one dollar is applied to your credit card at the time of booking. This is presumably done just to ensure that you have a valid credit card.

Before check-in

As mentioned above, some hotels have a policy to charge you a few days or weeks before check-in. This is when those pesky resort deposits are often charged, so always be sure you are clear on whether or not those are refundable or not.

You should always be able to find this information in the terms and conditions when you go through the booking process.

Check-in

When you check into a hotel you will virtually always be asked to handover a credit card and this is typically when the credit card authorization happens. A good hotel agent should be able to clearly explain the authorization amount and process to you but they don’t always go into detail.

If you are paying with cash then you may have to handover a pretty hefty cash deposit.

Remember, you could be asked to pay for your entire stay at check-in if you booked a prepaid stay or if the hotel has an uncommon policy of asking for full payment at check-in for standard rate stays.

Related: What Time Is Check-In for Hotels? (Early Check-In Tips)

During your stay

As stated above some hotels may apply a new hold on your credit card each day based on your activity. (In my experience this seems to be very rare.)

Some properties could actually charge your card for incidentals as you consume things like room service but for the most part hotels like to add those things up at the end of your stay and then charge you. Therefore, you are usually dealing with an authorization (and not individual charges) until check out.

The exception is when you ask a hotel staff member to charge your card directly instead of charging it to your room or your tab.

Check out

For non-prepaid rates, the most common time that you will be charged for a hotel stay is at check out.

If you already pre-paid for your stay, then check out is when you will likely be charged for things like incidentals.

You can handle check out in different ways and that might determine when exactly you get charged.

For example, if you check out at the front desk they will finalize your bill and allow you to review it on the spot. It’s at that time that you will likely be charged.

If you check out via the hotel’s app then your credit card might get ran at that time.

If you simply leave the hotel without checking out on the app or at the front desk then whenever the hotel decides to officially check you out after the standard checkout time, that’s when you will probably see a charge reflected in your account.

After check out

On some stays you may not actually get charged when you check out of the hotel. It’s possible that a hotel may take a couple of days to make the charge and this has happened to me on a couple of occasions.

Sometimes this can be an indicator that something went wrong and so you will want to apply extra scrutiny to your bill to make sure that it is accurate. Other times it may have just been caused by some sort of system delay, holidays, etc.

Final word

Knowing when and how your credit card will be charged by the hotel is not always straightforward. In fact, it often requires you to pay close attention to all of the terms and conditions in order to know exactly how credit card holds will work and when you can expect them to be released.

In my case, I try to make it a habit to review my online bank account a week after every stay to check for things like lingering holds and to ensure that the final bill was accurately charged. I also like to check out in person at the hotel so that I have a paper receipt of my stay (the folio).

Does Getting New Credit Cards Hurt Your Credit Score?

One of the first questions that people tend to have before jumping on new credit cards is whether or not their credit score is going to be hurt if they apply for multiple credit cards.

The answer to this question can hinge on a number of factors like prior established credit history, payment habits, and a few other things. However, generally speaking, getting approved for new credits will not hurt your credit score and will usually even improve it!

This article will walk you through why getting new cards should improve your credit score.

Tip: Use WalletFlo for all your credit card needs. It’s free and will help you optimize your rewards and savings!

Utilization and Payment history (65%)

The great news for people who want to apply for a lot of credit cards is that the primary factors that affect your credit score are your: 1) payment history and 2) utilization.

In fact, these factors are estimated to account for 65% of your credit score! For responsible credit card consumers, opening up new credit cards will only allow these factors to continue to benefit your credit score over time and here’s how.

Payment History (35%)

Payment history is the most important factor in determining your credit score.

If you have paid all of your car loans, student loans, previous credit cards, etc. on time, then you’re in luck because your payment history will only continue to benefit your score over time as you add more cards to your credit portfolio.

If you have some late or missed payments then it’s going to be more of a headache for you. You’ll generally have to wait seven years for late payments to be removed, though you can always try your luck with goodwill letters and contacting your creditors.

The good news is that if you can get a few approvals then your monthly payments on these new cards can help “dilute” your negative payment history and bring your payment history closer to 100% satisfactory a lot quicker.

Since payment history is so important to your score you need to realize the importance in remembering to always make timely monthly payments.

As mentioned, maintaining responsible payment habits will increase your score over time but there’s always the risk that with more payments to remember you might be more susceptible to missing a payment (just something to think about).

Still, the important take-a-way is that the most important factor for your credit score, payment history, will be positively affected as you open up new credit cards and responsibly make your payments on time.

Utilization (30%)

The second most important factor for your credit score is utilization (how you pay off your credit card bills). This is also known as your “credit-to-debt” ratio. You can figure out your utilization by dividing your outstanding balance by your overall credit limit. For example, if you have a credit limit of $30,000 but have $10,000 worth of debt, then you divide 10,000 by 30,000 and you get a utilization score of 33%.

There are two things looked at with this score: your overall utilization and the specific utilization on each card.

Overall utilization

This considers every line of revolving credit that’s currently open. This percentage needs to be as low as possible. Generally, under 10% is thought to be excellent but I keep mine at about 4% to keep my score as high as possible and to avoid paying interest on my accounts.

Opening up new credit cards can create a snowball effect that benefits your utilization and ultimately your credit score. Here’s how this snowball effect works.

First, it becomes significantly easier to keep your utilization low once you get approved for additional cards. Let’s say you had one credit limit of $5,000 and $1,000 of outstanding debt. Well, your utilization would be 20%. If you could only get approved for one card with an additional $5,000 credit limit you could cut your utilization down to 10%, increasing it from “good” to “excellent.”

This decrease in your utilization then leads to a bump in your credit score but the effect doesn’t stop there.

When it’s time for you to apply for your next credit cards the banks will see: 1) an improved credit score and 2) that other banks found you to be a low credit risk since they offered you additional credit.

This will lead to additional approvals with often even higher credit limits, which of course leads to more easily maintained lower utilization. So now your $1,000 of debt may only account for 5% of your utilization or potentially even less.

The cycle then repeats itself and goes and on, continuously lowering your utlliization, building up your payment history, and ultimately increasing your credit score.

Specific Utilization

Your overall utilization is  more important than the specific utilization of each card but having a high utilization on a single card can still hurt your credit score, especially if you don’t have many credit accounts. Your specific utilization for each card needs to be 30% or lower for optimal results, although there’s usually more wiggle room for specific utilization than overall utilization.

Where having a high utilization on a single card can really hurt is with specific banks. Some banks may not want to extend you additional credit if you have a high utilization on a single card issued by them so it’s always a good idea to avoid having a maxed out (or close to maxed-out) card even if you don’t think it’s significantly damaging your score.

Getting new credit cards can help you indirectly with your specific utilization because some banks like Chase will allow you to transfer credit lines from other cards. So if you were near 50% on a Chase Freedom card and got approved for a Sapphire Preferred, you could also transfer some credit from the Sapphire line to the Freedom line to decrease the utilization.

The Takeaway

The takeaway on this is that at least 65% of what determines your credit score should be positively affected by getting new credit cards. This means that on average the benefits of getting new cards will outweigh the negative effects and your credit score should rise in the long-run.

We can’t discuss the good without the bad. Even though the benefits to opening up new credit cards outweighs the negative factors, here’s a look at some of the factors that can hurt your score when applying for new credit cards.

Two factors that will negatively affect your score

The things that are going to hurt you are: 1) credit history/average age of accounts and 2) new accounts.

Credit history/Average age of accounts (15%)

Your credit history aka average age of accounts (“AAoA”) is the factor most detrimental to your score when getting new credit cards. Applying and getting approved for new credit cards will (almost) always bring down your average age of accounts and thus work to counteract the benefits to your credit score.

How much damage will be done depends on a lot on what your current credit portfolio looks like. If you have some established accounts from years ago, then a new credit card will only have a minimal impact. If you have a thin profile and do an “app-o-rama” where you apply for 3-5 cards at once, you’re AAoA will take a serious hit and lower your credit score, at least temporally.

Thus, while a single new credit card shouldn’t hurt you too much (if at all), it all depends on your personal credit history in terms of how much damage will be done with multiple cards.

Related: Does Closing Your Credit Card Hurt Your Credit Score?

What can you do to limit the damage?

If you have a thin credit report, there’s not too much you can do to protect your average age of accounts from being hurt once you start applying for tons of new credit cards. However, there are a few things that can help.

Adding yourself as an authorized user to older credit cards. The bad news is that this will often show up as a new account on your credit report. Still, adding yourself to one or two old cards can provide you with a decent boost.

The second way is to utilize small business credit cards. Most business credit cards do not show up as new accounts on your personal credit report and so they won’t lower your average age of accounts.

New Credit (10%)

The second way applying for new credit cards can negatively affect your score is buy impacting your new credit category. New credit accounts for 10% of your credit score. The main factors in this are hard-pulls and the opening of new accounts.

Hard-pulls

Contrary to what many believe, hard pulls aren’t a huge knock on your credit. Usually, a new hard-pull will bump your score down 2-5 points but only temporarily. The negative effect of a hard-pull tends to diminish within about 60 to 90 days so they don’t really present long-term trouble for your score.

New Accounts

New accounts can hurt your score a little more, however.

One way credit cards hurt your score is if you pursue many new lines of credit in rapid succession. This makes you look desperate for credit to banks and therefore more of a credit risk. Getting one new card shouldn’t look bad but getting 5 cards in one week will cause some damage to your score. Thus, if you plan on pursuing multiple cards it makes sense to be as patient as possible when planning out your applications.

Note: if applying for a mortgage loan or car loan you need to be extra sensitive to the effect of new accounts on your credit.

An additional way that new accounts damage your score is that they lower your average age of accounts. Again, this is not a major concern for people only considering applying for a small amount of cards, especially if they have an established credit history.

One thing to keep in mind if you’re planning on applying for several cards is that it is not uncommon for your credit score to dramatically rise and fall during the process. As hard pulls, new accounts, new utilization percentages, and payment history change, they are all calculated in unique ways and given different weight at different times.

Your credit score could dip 30 points in January and then rise 40 points in February, only to fall 8 points in March and rise 2 points in April. The important thing to remember is that if you responsibly manage your payment history and utilization (worth 65%) your score should always rise in the long run.

Credit Mix: A neutral factor? 

Credit Mix (10%)

Credit mix is considered to be the least important factor for your credit score, so I’m just including it for the sake of completion.

Credit mix considers both the number of credit accounts and the variety of them. For most people new to credit cards but currently paying on an auto loan, student loans, mortgage, etc., their score should benefit with new credit card accounts.

However, in the end, this factor probably isn’t going to affect your credit score too much either way, so I wouldn’t make it a deciding factor when choosing whether or not to apply for a credit card.

Conclusion

At least 65% of what affects your credit score should be benefited with new credit cards. 10% may or may not be benefited, and only a remaining 25% may be negatively affected by pursuing new cards.

Therefore, on average, there’s more benefit than harm done to your credit score when you apply for new cards and so long as you’re responsible, you shouldn’t worry about damage to your credit score when applying for new credit cards. 

Citi Credit Card Application Rules Ultimate Guide [2020]

Each bank has their own rules and restrictions for applying for new credit cards. Some can be a little confusing, while others are more straight forward. I’d put Citi closer to the confusing side because there is so much unknown. Here’s what you need to know about Citi’s application rules when it comes to the 8/65/95 and 24/48 month application rules.

What are the Citi credit card application rules?

The Citi credit card application rules are the following: 

  • 1/8 Rule
  • 2/65 Rule
  • 1/95 Rule
  • 6/6 Rule 
  • Welcome bonus restrictions (24/48 month application rules)

These rules can get very confusing because there is not a lot of clarity as to how they are calculated when it comes to personal and business credit cards. Also, because you are dealing with multiple rolling periods of time, it is more confusing than dealing with a single timeframe of something like 12 months.

This is why I would suggest to use WalletFlo for calculating all of your Citibank credit card application rules. However, there are some exceptions and details to know about these rules, and so I will explain all of these in detail below.

Citi 1/8 Rule

The 1/8 rule means that you cannot apply for more than one Citi credit card in an 8 day period.

The actual rule implemented by Citibank is 7 days but to be on the safe side people have gone with eight days. This means that if you were to apply for a Citi card on the first of the month, you would need to wait eight days until your second application, which would be on the ninth. 

There are a couple of things to know about this rule. 

Based on application date

The first thing is that this rule is based on the application for a credit card.

If you don’t know what day you applied, you can check your credit report for a Citibank inquiry or you can check the application number from Citi. The date is written in the following format: “year, month, day” in the application number. So 201702150000 means you applied on February 15, 2017. (hat tip: FT).

You should not that if you apply and are not approved, that application will still count towards this rule. So you would need to wait eight days until after you were rejected to apply for another card. 

In many instances, Citi won’t run a hard pull if you’re rejected on the basis of the 1/8 rule (or 2/65 rule). So if you only waited four days until after your first application to apply, that second application likely will not cost you a hard pull.

If your (second) application does not go through (there is no hard pull), that application may not count towards this rule but if you want to be on the safe side you may as well go ahead and count that towards the rule for your next app.

Exceptions 

The second thing to note is that there are exceptions to this rule. Some people have been able to get more than one Citi credit card in an eight day period. However, this usually seems to involve getting one personal credit card and one business credit card.

Personally, I would not try to push it with this rule since the waiting period is only one week. 

Citi 2/65 rule

The Citi 2/65 rule states you cannot apply for more than two Citi credit cards in a 65 day time span, and it works the same way as the 1/8 rule.

This means that if you were to apply for a Citi card on the first of the month, you would need to wait eight days until your second application, which would be on the ninth. And then for your third application you would need to wait 65 days from your first application. 

It would look something like this:

  • Application 1: January 1, 2020
  • Application 2: January 9, 2020
  • Application 3: March 6, 2020

The difference with this rule is that it seems to be more of a “hard rule.” In other words, there are not as many (or any) exceptions to this rule like there are to the 1/8 rule.

So you should never apply for more than two Citi cards within any 65 day timespan  — you’re pretty much just guaranteeing/risking a denial. 

I have also seen some reports of people getting limited to one card within a 60 day period. This appears to involve some sort of anti-fraud measure and usually is triggered if you are trying to get a card for a second time (e.g., applying for a card that you already have). 

So if you want to play it very conservatively, you might just want to wait until 65 days have passed from your first application to apply for another Citibank credit card.

The 1/95 Rule (business credit cards)

The 1/95 rule states Citi will only approve you for one business credit card in any 95 day span. (Same thing — the actual rule is 90 days.)

There are mixed reports of how business credit card application rules affect the Citi personal credit card applications rules. Some claim that business credit card applications don’t affect the rules above while others state that they only affect some of those rules. 

This is extra confusing because some business credit card applications may only use a Social Security number while others might use a EIN + Social Security number and that could potentially alter the outcome. Also, sometimes something like this could come down to the discretion of the banking agent.

To make things simple, I would just treat a business credit card the same as a personal credit card when it comes to the application rules. 

So this is what I would ask myself when applying for a Citibank credit card:

  • Have I applied for any Citibank credit card (personal or business) in the past eight days? If yes, then don’t apply for any card. If not, then you are ok to apply for a card.
  • Have I applied for two Citibank credit cards (personal or business) in the past 65 days? If yes, then don’t apply for any card. If not, then you are okay to apply for a card.
  • Have I applied for a business Citibank credit card in the past 95 days? If yes, then don’t apply for any business card. If not, then you are ok to apply for a business card.

Or to make things extremely simple, you can always just use WalletFlo.

One last thing about Citibank business credit cards. Some people are not allowed to have more than one business credit card and are forced to cancel all of their business credit cards including employee cards in order to get another. Some people are also limited to only one Citibank business credit card their entire lifetime. Nobody knows how these limitations are determined so it is usually just a matter of trial and error.

The Citi 6/6 rule 

Something else to consider is what some dub the “Citi 6/6 rule” which states that you might be denied if you’ve had 6 or more hard pull inquiries in the last 6 months.

This does not appear to be a hard and fast rule like the 8/65 rule, as you can find data points where people have still been approved for Citi credit cards despite having way over 6 inquiries in the previous 6 months.

Still, if you can, I’d try to heed this advice since this reasoning has been given to a lot of people to explain why their application has been rejected.

Tip: Do research to see which credit bureau Citi pulls from in your region, since only those inquiries will be relevant.  For example, if Citi pulls from Equifax and/or Experian then any recent inquiries on your TransUnion credit report should be irrelevant.

Welcome bonus restrictions

Citibank also imposes credit card rules that prevent you from getting bonuses repeatedly. 

It is really important to pay attention to the language used for these rules because sometimes they may only prohibit you from getting an individual card in a period of time or they might prevent you from getting a card that belongs to a family of cards. 

Also, the time periods in the restrictions will vary from 24 months to 48 months.

Co-branded 48 month language

Some credit cards like the American Airlines credit cards have rules that prohibit you from getting bonuses for up to 48 months. The great thing about these rules is that even though they are very long periods of time, they only apply to the individual credit cards.

Citibank has several American Airlines credit cards, so this means that if you open up one American Airlines card like a Citi AAdvantage Platinum Select that will not affect your eligibility for a bonus for a different type of American Airlines credit card such as a Citi AAdvantage Executive World Elite Mastercard. 

Here is an example of what the rule states: “You are not eligible for a bonus if you have received a bonus for an AAdvantage Platinum Select in the past 48 months.”

This just means that if you have received a bonus in the last 48 months, you will not be eligible. So it is possible that you could have closed your card in the last 48 months or even product changed to or from the card and you should still be eligible for the bonus.

Thankyou Rule 24-month language 

Here is what the ThankYou rule 24-month language states. 

“Bonus ThankYou Points are not available if you received a new cardmember bonus for Citi Rewards+, Citi ThankYou Preferred, Citi ThankYou Premier, or Citi Prestige, or if you have closed any of these accounts, in the past 24 months.”

So the trick here is to make sure that you have not received a new cardmember bonus for a ThankYou Points card AND that you have not closed any of the ThankYou Points card accounts in the last 24 months.

It seems that we are still waiting on a clear-cut answer of whether or not a product change does count as a closed account. For example, if you product changed from a Premier card to something like a Double Cash, the question is does that count as a closure of a ThankYou card and thus reset the 24 month clock?

In the past, this would often come down to whether or not you were issued a different credit card number upon product changing.

So let’s say that after you product changed your credit card number was the exact same. In that case, that would not be considered a new card and would not reset the clock. But if you were given a completely different credit card number that would reset the clock.

Since this is a newer rule changed in 2019, we are still waiting for the official consensus on this but I would assume that a product change would reset the clock just to be on the safe side for now.

So when it comes to Citibank, you always need to be very cautious about resetting bonus deadlines when closing cards.

Related: What Card Should I Product Change my Citi Premier to?

Offers without 24-month language

One final thing to note is that sometimes you can find offers that do not have the 24 month language on them. These are often targeteds offers so be on the lookout for those. 

No overall limit on total number of credit cards

Citi does not have a firm cut-off rule for how many total Citi credit cards you can have. That doesn’t mean it’s unlimited, of course. Like any bank, if you begin to approach what you believe is your maximum credit line with Citi, perhaps consider lowering credit limits in preparation for upcoming apps.

As always, remember that your milage may vary with some of these things. Outside of the 8/65/95 rule, you never know how Citi may interpret or modify its own terms so always try to do some research on the specific card (or even specific offer) you’re considering. You might find others have had great success or you might find the opposite, you never know.

Other issuer rules

If you are interested in finding out what the rules and restrictions are for other major banks check out the links below:

Final word 

Overall, the Citi credit card application rules can get a little confusing because they are so different from other issuers. However, if you play it conservatively by treating product changes as closed accounts and by not trying to apply for too many cards too quickly, the rules can work in your favor.

Different Types of Travel Credit Cards

[Offers contained within this article may no longer be available]

This is another article that is part of the multi-part MTH (“Make Travel Happen”) series designed to provide beginners with all the information needed to let their travel dreams come true. 

There are three main types of credit cards that you will be applying for when starting MTH. These credit cards include: 1) co-branded cards, 2) cards that earn transferrable points, and 3) cards that earn travel credits. There are pros and cons to each type of card but below is a general overview of the different types travel credit cards and some insight into which type may be best for you.

Co-branded cards

united_mileageplus_explorer_card

Co-branded cards are credit cards issued by major banks like Chase, American Express, and Citi that earn miles (or sometimes points) for specific reward programs.

Here are some examples of some of my favorite co-branded cards:

  • United MileagePlus Explorer Card
  • British Airways Visa
  • Southwest Premier and Plus Cards
  • Citi AAdvantage (American Airlines) Platinum Select Card
  • Ritz-Carlton Rewards Credit Card
  • Marriott Rewards Premier Credit Card

Co-branded cards can be great ways to jump-start a balance of miles or points for a rewards program and they also usually offer other perks.

These perks include things like:

  • Free checked bag
  • Priority boarding
  • lounge passes
  • Automatic elite status
  • Free anniversary nights at hotels

The downside to them is that they don’t offer the flexibility that you can get from other cards that earn transferrable points.

Before jumping on a co-branded card, you really need to have done your homework so that you know that you’ll be able to take advantage of the maximum value from your card. Often times, you may get a credit card for a specific airline but intend on using the miles earned from that card on a different airline alliance partner.

For example, I’ve gotten American Airlines Cards and used all of the miles earned on those cards to book flights with Etihad and Qatar airlines. You usually lose the benefits of the card like free checked bags when you do that, but it’s worth the sacrifice for the flexibility of using your miles on an airline you really want to fly on.

This is why it’s important to be familiar with alliance partners before applying for credit cards so you can maximize your use of your miles.

Cards that earn transferrable points

2016_05_21 EVERYDAY PREFERRED CHASE SAPPHIRE

The most valuable and sought after cards are usually those that allow you to earn points that can be transferred to an array of travel partners (both airlines and hotels). These are great because the transferability allows for much more flexibility when making travel plans. You can use these cards in conjunction with co-branded cards to amass huge balances with certain programs, or if you need to top-off for certain airline or hotel programs you can usually get points transferred over within a day a or two and be ready to book your trip.

There are three major banks that offer these type of reward programs.

  • Chase Ultimate Rewards
  • American Express Membership Rewards
  • Citi Thankyou Points

Only certain cards from each bank will allow you to earn points that can be transferred to travel partners, however. Below are lists of some of the top credit cards that will earn you points that can be transferred to travel partners of the respective reward programs.

Chase 

  • Chase Sapphire Preferred
  • Chase Ink Plus
  • Chase Freedom*
  • Chase Freedom Unlimited*
  • Chase Ink Cash*

*While you can earn Ultimate Rewards with these cards, you’ll need the Sapphire Preferred or the Ink Plus in order to transfer the points earned on those cards to travel partners.

American Express

  • EveryDay Card
  • EveryDay Preferred Card
  • Premier Rewards Gold Card
  • Platinum Card from American Express (and business versions)
  • Business Rewards Gold Card

The American Express SPG card earns SPG points but these can be transferred to many different programs so it acts as a card that earns transferrable points.

Citi Thankyou Points

  • Citi Prestige
  • Citi Premier
  • Citi Preferred*

*While you can earn ThankYou Points with the Preferred, you’ll need the Prestige or the Premier in order to transfer the points earned on those cards to travel partners.

In addition to transferring points to travel partners, some of these programs also allow you to redeem your points for travel expenses, statement credits, gift cards, and even shopping. While these can be okay options sometimes, you are almost always going to get the most value out of your points when you transfer them to travel partners.

Which program is best for you will depend on a lot of factors, such as your desired airfare class, desired destination, proximity to certain airports, and your affinity for different airlines. I’ll discuss all of those things much more in depth in a later article but it’s just important to note the different ways you can earn points and transfer them out to travel partners.

Cards that offer travel credits

Barclaycard Arrival Plus

Some cards simply provide you with points that act as a travel credit instead of giving you miles and points that will be used with an airline or hotel program.

How they work is that you:

  • 1) Earn the sign-up bonus for X amount of points
  • 2) Use your card for a qualifying travel purchase
  • 3) Log in and select your travel credit to apply to that travel purchase

So there’s never a transfer of points to an outside travel program — it’s all done internally with the bank that issued the card.

What qualifies for travel will vary but you can always expect things like airfare, hotels, trains, etc. to qualify but be aware of minimum purchase requirements.

The benefit to these cards is that you can use them to cover expenses for hotels or airline tickets that you couldn’t find or use points or miles on. The drawback is that you’re limited to the set value amount for your statement credit which is usually at most around $400. Compare that to transferring points to airline programs where you can turn the same number of points into travel valued at over $1,000.

Some credit cards that offer these type of credits are:

  • Barclaycard Arrival Plus
  • Bank of America Travel Rewards Card
  • Capital One Venture Rewards Credit Card

Check out my review of the Barclaycard Arrival Plus to give you a better idea of how these cards work.

These are the three main types of credit cards that you should get familiar with. Next, I’ll go over the difference between rewards credit cards that are meant for earning you lots of miles and points and cards meant to provide you with travel benefits that will make your travels much more comfortable and convenient.

The Best Credit Cards with Lounge Access

Offers contained within this article maybe expired.

There are a number of credit cards that offer airport lounge access, but they all come with pretty hefty annual fees (which are almost never waived) so you want to make sure that you’re going with the card that will benefit you the most before applying for them. Which card will be best for you will depend on factors such as what airline you frequently fly with, which airports you frequent, and how much you value additional benefits that the card offers. Here’s a breakdown of my top 5 credit cards that offer airport lounge access.

Platinum Card from American Express

PLATINUM CARD

  • Annual Fee: $450

The Platinum Card from American Express offers you the “Prestige” level membership to Priority Pass  — worth $400 a year. This grants you access to over 850 airport lounges worldwide and you should be able to find a lounge at just about every major airport. Most of the lounges provide complimentary alcohol, refreshments and/or meals, free wifi, comfortable and quiet spaces to relax, a selection of magazines, power outlets, and some even have showers, spa, and bed facilities.

The Platinum Card also provides you with access to American Express Centurion Lounges for yourself and two guests or immediate family members. Centurion lounges are among the best lounges that you’ll find at U.S. airports. They currently have locations at SFO, SEA, LAS, LGA, MIA, DFW and coming this year (2016) they will have one in Houston (IAH).

https://flic.kr/p/qfAvYn
The Centurion Lounge at SFO.

Photo by Mighty Travels via Flickr.

What’s really nice about the Centurion lounges is that with the Platinum Card you’re allowed to bring in immediate family members or up to two guests for no additional fee. Thus, if you frequent any one of the above airports with Centurion lounges with travel partners or family, you may want to seriously consider the Platinum Card. 

Also not to be forgotten is that the Platinum Card provides access to Delta Sky Club lounges; however, you will need to be flying with Delta that day in order to gain access.

The Platinum card allows up to three authorized users to be added for the total price of $175 and each of the authorized users will be offered full benefits like Priority Pass and entrance into the Centurion and Delta Sky Club lounges. If you can max out the authorized users there’s a potential for huge value as you’d getting well over $1,200 in value a year for a mere $175.

Other benefits include:

  • $200 annual airline credit (essentially reducing the annual fee to $250)
  • $100 statement credit for Global Entry/TSA Pre-Check (a Godsend that’s good for 5 years!)
  • Gold status with Hilton and Starwood
  • Free Boingo Wifi subscription (worth $120 per year)
  • Rental car benefits like express check-in, free upgrades, and discounts with status.
  • Concierge service

The standard sign-up bonus for the Platinum Card is 40,000 Membership Rewards but you can come across targeted offers for as high as 100,000 Membership Rewards making the potential value of the Platinum Card very hard to beat.

Citi Prestige

citi-prestige-card

  • Annual Fee: $450

The Citi Prestige also offers Priority Pass but with the Citi Prestige, you can take up to two guests with you into the lounge for free. Compare this with the Amex Platinum which requires the guests to pay $27 each time for lounge access. If you and your partner do all of your traveling together then this essentially operates as a free membership for them, which means you’re getting about $800 in benefits!

The Club lounge
The Club Lounge at MCO accessed via Priority Pass

With the Prestige, you are also offered access to the Admirals Club lounges when you fly American Airlines on that day. Unfortunately, this benefit is not offered to authorized users and can only be utilized by the primary cardholder.

You can add an unlimited number of authorized users to your Citi Prestige for $50 each. Authorized users for the Prestige aren’t given the 4th night free, Admirals Club access, or the Global Entry Credit, but they do get the Priority Pass membership, which means they’re getting a $400 benefit for only $50, so it’s still a sweet deal!

Other benefits include:

  • $250 airline credit (which can be used for broader expenses, such as airline tickets)
  • Complimentary night at any hotel of your choice after a minimum 4-consecutive-night booking (Probably the most valuable benefit)
  • $100 Global Entry credit
  • 3 free rounds of golf through GolfSwitch
  • Rental car benefits like express check-in, free upgrades, and discounts with status.
  • Concierge service
  • Bonus category spending:
    • 3X on air travel and hotels
    • 2X on dining and entertainment
    • 1X on all other purchases

The Citi Prestige also comes with a solid sign-up bonus at 40,000 Thankyou Points and can even be as high as 100,000!

To read up more on the Citi Prestige vs the Platinum Card from American Express read here.

Citi® AAdvantage® Executive

card-executive AMERICAN

  • Annual Fee: $450

This card will provide you with access to over 40 Admirals Club® lounges and access to other airline lounges, such as Qantas lounges. It also allows you to bring in immediate family members (spouse or domestic partner and children under 18) or up 2 guests traveling with the primary cardmember or authorized user. 

A newly added benefit is that authorized users are allowed access to the Admirals Club® lounges, though it comes with some restrictions. For example, the authorized user benefit does not provide: (i) access privileges to the Arrivals Lounge, Flagship Lounge facilities, or other airline lounges or clubs with which American Airlines may have reciprocal lounge or club access privileges, including lounges operated by members of the oneworld alliance. Still, even with some limitations, with no fee to add authorized users, this can be a tremendously valuable benefit. 

Other benefits include:

  • First Checked Bag Free
  • MileSAAver discount for on MileSAAver awards to destinations selected every other month
  • Global Entry or TSA Pre✓® Application Fee Credit
  • 25% savings on in–flight purchases of food, beverages, and headsets on flights operated by American Airlines
  • Priority check-in, airport screening, and priority boarding privileges when traveling on domestic flights
  • The primary cardmember will earn 10,000 Elite Qualifying Miles (EQMs) after spending $40,000 in purchases that post to cardmember’s January through December billing statements

The annual fee is $450 but it’s cheaper than what you’d pay for Admirals Club membership without status ($500).

The sign-up bonus for the Executive Card is 60,000 miles but offers have been as high as 100,000 in the past.

United MileagePlus® Club card

united_club_card

  • Annual Fee: $450

This card provides you with United Club membership but authorized users will not receive their own United Club membership and are only eligible for United Club access if they are traveling with the primary cardmember, as two guests or one guest and dependent children are allowed access to the lounge with the card. With the Club card, you’ll also have access to hundreds of Star Alliance lounges when departing from those airports on a Star Alliance partner (but be limited to one guest).

IAH united lounge
IAH United Lounge Terminal D

Other benefits include:

  • Designated check-in lines, priority security lanes, priority boarding
  • Free 1st and 2nd checked bag, priority baggage handling
  • Close-in booking fee waivers on award tickets booked less than 21 days before departure
  • Earnings of 1.5 miles for each $1 on purchases.
  • Primary Cardmember is eligible for Platinum status in the Hyatt Gold Passport program.
  • Use your miles to book any available seat, any time, on any United-operated flight. If seats are available for sale, they can be redeemed at the MileagePlus Standard Award level

The annual fee is $450 but it’s $100 cheaper than the $550 that you’d pay for United Club membership.

There is no sign-up bonus for miles with the card but you are given a $100 statement credit after your first purchase with the credit card.

Delta Reserve® Credit Card from American Express

DELTA RESERVE

Annual Fee: $450

This card offers you complimentary access to Delta Sky Club lounges and a discounted rate ($29 per person) for up to two guests, so guests cannot get in for free. Authorized users can be added for $175 per card. As of yet, the Delta Reserve Credit Card does not allow access to SkyTeam partner lounges. (You can use this tool to find lounges where you’d be allowed entry with the card).

Other benefits include:

  • Get 15,000 Medallion Qualification Miles (MQMS) after you reach $30,000 or more on purchases on your Card within the calendar year and if you spend $60,000 or more, you will be awarded an additional 15,000 bonus miles and 15,000 MQMs.
  • You and up to eight more passengers in your reservation can board your flight with Zone 1 priority boarding
  • You can check your first bag free on Delta flights booked with your Card
  • Delta Reserve Companion Certificate
  • 20% savings on certain in-flight purchases of food, alcoholic beverages and audio headsets, and movies, shows, etc.
  • Delta Reserve Companion Certificate upon renewal of your card good for a round-trip domestic flight.

The sign up bonus is currently get 10,000 Medallion Qualification Miles (MQMs) and 10,000 bonus miles after your first purchase on the Card.

Final Word 

Always consider the airlines you’ll be frequenting and the airports you’ll likely be visiting before jumping on a card for lounge benefits. In addition, some of the additional benefits, especially for the Platinum Card and Citi Prestige can be add up to save you thousands, so always factor in those benefits as well. 

Strategy for Applying for Multiple Credit Cards

Note: This article contains outdated information — will be updated. 

Jumping into the game and choosing your first travel credit card can be a bit of an overwhelming experience, especially if the world of credit cards is new to you and you’re eventually planning on applying for several cards. With certain banks now clamping down on applications, the need to make wise decisions when structuring your credit card applications is all the more necessary. This article will look into a good strategy for applying for multiple credit cards.

A word on pace

Some people recommend applying for a handful of cards at once (“app-o-rama”) and others recommend applying for just one or two cards every month. I suggest you taking the more methodical approach and apply for one to two credit cards per month.

Specifically, as you will see below, I suggest when starting out you wait 60 days in between Chase apps but consider applying for two cards at once since they combine hard pulls.

Chase has a 30 day rule where you’ll almost always get denied if you apply for more than two cards within 30 days, so you pretty much have to wait 30 days. And when you factor in the 5/24 Rule (discussed below), it makes sense to just stick to Chase in the beginning and give yourself sufficient time to get approved.

Look into Chase cards and Ultimate Rewards first

Chase credit cards (1)

Right now Chase has a rule called the “5/24 Rule” which means that you can’t be approved for their house-branded cards (Sapphire Preferred®, Chase Freedom, and Chase Slate) if you have opened 5 or more accounts in the previous 24 months. Also, there are rumors that this rule will be enforced across ALL Chase cards even co-branded cards like the United MileagePlus® Explorer card and their business cards. The jury is still out on when and if this will come into effect, but it’s definitely something to consider when applying for cards.

Thus, you will probably best be served by applying for Chase cards first unless you are certain that you will not be getting value from their co-branded cards or house cards that earn Ultimate Rewards. And you should be 100% certain. For example, if you’re not familiar with airline alliances and have ruled out Ultimate Rewards simply because you didn’t see an airline you’re interested in on their travel partner list, you need to go back and do some more homework. (A lot more homework, I’d say.)

So once you decide to pursue Chase, you need to know which cards to go after first.  Below you will see my recommended options for your applications with Chase. The slash (“/”) indicates an option for your first application and the hyphen (“-“) indicates an option for your second application that you should probably do at the same time as the first.

Note: I’ve recommended the option of applying for a house-branded card along with a co-branded card for Chase since some are often denied when they apply for two house cards at the same time (although you definitely can get 2 house cards at once).

My order for pursuing cards would depend on my prior credit history.

Previous history with Chase or good credit? 

  • Sapphire Preferred/Reserve – Co-branded (subject to 5/24)
  • Ink Plus/ Ink Cash/ Freedom/ Freedom Unlimited – Co-branded (subject to 5/24)
  • Ink Plus/ Ink Cash/ Freedom/ Freedom Unlimited – Co-branded 

No history with Chase or little credit history?

  • Freedom/ Freedom Unlimited – maybe Co-branded (subject to 5/24)
  • Sapphire Preferred – maybe Co-branded (subject to 5/24)
  • Ink Plus / Ink Cash / Freedom /Freedom Unlimited – Co-branded

The Ink cards are business cards so if you’re unsure about them and you’d like some insight into applying for them check here.

No credit history?

You may have a very tough time getting approved from Chase without any credit history.  Consider opening up a secured credit card, student credit card, or store credit card for 6 months or longer. Then start back at the beginning assuming you have a respectable credit score (typically something near 700)

Of course, if you already have one or more of these Chase cards you can always jump to the next card.

Citi or any other non-Amex bank

Citi Thankyou Premier

After you hit Chase, I’d move to Citi or a bank like Barclay’s.

The reason is that once you opt-in to offers and you start picking up credit cards, you’re more likely to get credit card offers in the mail. One interesting thing about Amex is they tend to send more targeted offers to those people don’t currently hold American Express cards. Thus, I’d hold off on Amex applications and just try my luck to see what kind of targeted offer I might get from them.

If I had to pick one bank to go for after Chase it would be Citi, though.

It’s a little tricky to pick a Citi card right now because some of the best offers for Citi like the 50,000 Premier have disappeared. That would normally be my first pick but with no bonus currently out, I’d probably go for a co-branded card or the Citi Prestige. Since Citi has the 8/65 Rule, you’ll have to wait 8 days to apply for your second Citi card and then 65 days from the date of your first application, so you can’t apply for two Citi cards at once.

Your choices might look like:

  • Citi Premier/Prestige (I’d wait for at least 50K offer on the Premier, however)
  • Co-branded card like Platinum Select (if 50K offer)/ Hilton HHonors

Examine your pace

It’s always a good idea to periodically examine the pace at which you’re applying for new credit cards.

So up to this point your applications may have looked something like this:

  • 1/01/16 – Sapphire and United Explorer Card
  • 3/01/16 – Chase Freedom Unlimited and IHG Card
  • 5/05/16 – Citi Premier (50K offer)
  • 5/14/16 – Citi AAdvantage Platinum Select

So you’d have six cards within about 5 1/2 months. That’s a somewhat conservative approach compared to some people to be honest, but I think it gives you a safe route with dealing with Chase and Citi, while holding out on American Express to come with some better offers.

Not getting overwhelmed with spend requirements

After getting your second Citi card, you might think you’ll be ready to hit up any of the banks but you always have to remember that you’ll need to to be hitting your minimum spend requirements. Although the spend requirements may differ slightly depending on whether or not you’re applying with targeted offers, they would generally look like this:

  • 1/01/16 – Sapphire ($4,000) and United Explorer Card ($1,000)
  • 3/01/16 – Chase Freedom Unlimited ($500) and IHG Card ($2,000)
  • 5/05/16 – Citi Premier ($3,000)
  • 5/14/16 – Citi AAdvantage Platinum Select ($1,000)

That would force you to spend about $11,000 in those 5 1/2 months. That may or not may not be possible or an issue for you so but you always have to remember to be realistic about hitting those spend requirements.

Planning your next application

At this point, assuming hitting the minimum spend requirements would not be an issue for you, you’d have to make the choice if you want to jump into Amex or hold off for a potential targeted offer. To be honest, I don’t think I would hold off for Amex targeted offers more than 6 months — there are plenty of worthwhile American Express offers to take advantage of without getting a targeted offer.

If I were at this point, I might consider applying for two more Chase cards if I really wanted any of them because there’s no telling when the 5/24 Rule would potentially kick in. If I didn’t want to apply for any Chase cards, I’d probably go with Amex but once you’ve hit Chase to avoid the 5/24 Rule hurting you and waited out a little for Amex, there’s no real “bad decision” with respect to choosing a bank to apply with (so long as you’re going for quality cards, of course).

American Express

Amex has pretty lax standards for getting charge cards. You should read up on American Express Application Rules if you’re not familiar with them. Since Amex combines hard pulls, I would apply for two cards. You might go for the following two cards, for example.

  • Premier Rewards Gold Card/Amex Everyday Preferred – SPG

You could apply for three or more cards but you’d be increasing your odds of a financial review which is never a good thing (although it’s not the end of the world by any means).

Examine your pace once again

So now  your applications may have looked something like this:

  • 1/01/16 – Sapphire and United Explorer Card
  • 3/01/16 – Chase Freedom Unlimited and IHG Card
  • 5/05/16 – Citi Premier (50K offer)
  • 5/14/16 – Citi AAdvantage Platinum Select
  • 6/14/16 – Premier Rewards Gold Card / Amex SPG

Of course, your spending requirements would now be higher so you’d have to keep tabs on them. In this case, the two Amex cards could add on anywhere from $2,000 to $4,000 to the $11,000 you would’ve already met.

You’d now be at 8 cards in 6.5 months which is pretty reasonable (although it might shock 99% of the population to hear anyone describe that as “reasonable”). But you’re not “anyone,” remember?

Future plans and rotating banks

From that point you can stick with a steady 1 to 2 cards per month and be just fine. So long as you’re paying off your balances (or at least keeping them down) your credit score should be going up over time and you’ll be able to cruise along picking up cards you want here and there.

One last thing, I think it’s always a good idea to rotate the banks over a series of months. For example, once you’ve hit Chase, Citi, and then Amex, maybe then you hit up Barclays or Bank of America and then start the cycle all over again with Chase. Banks get a little weary when they see you’ve been pursuing a lot of credit recently, but they get even more weary when all that recent credit has come their own bank. 

You’ll be surprised how sustainable this 1 to 2 cards per month application strategy actually is over the course of a year and then even beyond. And one great plus about this strategy is that it leaves open the possibility of jumping on special unexpected offers when they come around. If you’re hitting 4 or 5 cards at once and then a great offers appears, you may be denied from that offer due to the high number of very recent inquiries. 

Final word

This strategy is just my personal recommendation. You can still be successful with your applications by varying from this and going the app-o-rama route, but I am just telling you what has worked for myself and many others around me. A steady pace can definitely win the race when it comes to credit card applications. 

Cover Photo by frankieleon via Flickr. 

The Discover it vs The Chase Freedom Card

[This article contains expired offers]

There are two Discover it® cards and two Chase Freedom cards available. For this comparison, I’m going to compare the Discover it® cash back card with the 5% rotating categories to the standard Chase Freedom card, also with 5% rotating categories. While these cards appear almost identical, there are certain features of each card that can make one much more valuable than the other depending on how the cardholder plans on redeeming their points.

Cash back vs potential miles

Cash
Not all “cash back” is created equally

Photo by 401(K) 2012 via Flickr. 

One of the biggest differences between these two cards is that the Chase Freedom card earns Ultimate Rewards. If you also have the Chase Sapphire Preferred® or the Chase Ink Plus®, you can transfer these Ultimate Rewards to a variety of airline and hotel partners. With the Discover it, you care limited to strictly redeeming for cash back and/or gift cards or online purchases.

This is a huge difference in terms of potential value because although Chase Ultimate Rewards can be redeemed for cash back at a rate of one cent per point, when they are utilized effeciently, they can be worth much more. For example, I recently wrote about redeeming about 60,000 Ultimate Rewards on Singapore Airlines at a redemption rate of 8.9 cents per point! (more on that below.)

Since the Discover it doesn’t earn any reward currency that can transfer to travel partners, you can’t ever multiply the value of your “cash back earned.” Thus, for the serious traveller who is keen on maximizing redemptions with airlines and hotels, the points earned from the Chase Freedom will often prove to be more valuable than the straight cash back redeemed from the Discover it.

Basic card features

Freedom

Chase Freedom

  • No Annual Fee
  • 0% Intro APR for 15 months on purchases. After the intro period, a variable APR of 14.24%, 19.24%, or 23.24%.
  • 0% Intro APR for 15 months on balance transfers. After the intro period, a variable APR of 14.24%, 19.24%, or 23.24%.
  • Balance transfer fee is 5% of the amount transferred with a minimum of $5.

Discover it®

Discover It

  • No Annual Fee
  • 0% Intro APR for 12 months on purchases. After the intro period, then 11.24% to 23.24% Standard Variable Purchase APR applies.
  • 0% Intro APR for 12 months on balance transfers. After the intro period, then 11.24% to 23.24% Standard Variable Purchase APR applies.
  • Balance transfer fee is 3% of the amount transferred.

The Discover it also has a few additional benefits that you won’t find with the Freedom, such as:

  • Free FICO score
  • No foreign transaction fees
  • No late fee for 1st missed payment
  • 100% U.S.-based customer service available day or night

These card features are roughly similar with the Freedom offering a longer interest free intro period of 15 months and the Discover it offering more benefits like no foreign transaction fees and free FICO scores.

The lower balance transfer fee of 3% for the Discover it is great, too, especially for those trying to pay off a large balance. It should be noted that the Discover it is generally easier to get approved for than the Chase Freedom, so if you’re trying to build up your credit you might want to consider your approval odds. 

Redeeming cash back

Discover it®

You may redeem your Cashback Bonus for:

  • Gift cards or instant eCertificates —starting at $20
  • Charitable donation to select charities—starting at a penny
  • Credit to your Account—starting at a penny
  • Electronic deposit into any account you designate—starting at a penny
  • Pay with Cashback Bonus at select online retailers—starting at a penny

Chase Freedom

  • Gift cards or travel at 1 cent per point
  • Cash back through an account statement credit or an electronic deposit into an eligible checking or savings account held by a financial institution located in the United States.  —  you need at least 2,000 points to use them for cash.

The Discover it allows for more flexible redemptions for cash back, as you can redeem starting at one cent for cash back, while the Freedom requires $20 increments for cash back. However, as already mentioned, the Chase Freedom can transfer out points to travel partners so long as you have one of the requisite premium Chase cards.

Therefore, if you know you just are interested in cash back rewards, the Discover it is more flexible but if you think you might be transferring points to travel partners, the redemptions for the Chase Freedom are going to be better.

Earning Potential

Chase Freedom

  • Earns 5X on rotating bonus categories up to $1,500 per quarter.
  • Earn a $150 bonus after you spend $500 on purchases in your first 3 months from account opening.
  • Earn a $25 bonus when you add your first authorized user and make your first purchase within this same 3-month period.

Discover it®

  • Earns 5X on rotating bonus categories up to $1,500 per quarter.
  • Cashback MatchTM: After the first 12 consecutive billing periods that your new account is open, Discover will match all of the cash back rewards you’ve earned.

The sign-up bonus sets the Freedom apart from the Discover it but the doubling of all points earned in the first year is a tremendous perk and can more than make up for the lost earnings of the sign-up bonus as will be shown below.

Comparing the 5X categories

The quarterly categories for both cards are roughly the same. Although they change each year, you can expect to generally see the same major categories like Amazon.com, gas, restaurants, etc.

If I had to give an edge, I might give to the Discover it for having Amazon.com in two quarters and for allowing for a heck of a stacking deal the first where you can basically earn 20X on certain categories by utilizing Discover Deals (more on that below). Chase might be stepping up its game in this department, however, as they offered a bonus 10X on Amazon.com last year in 2015.

Chase-Freedom Bonus Categories
2015 Chase Freedom Bonus Categories

 

2016_04_26 DISCOVER IT QUARTERLY BONUS
2015 Discover It Bonus Categories

Comparing the earning potential

So let’s run some simple math to see what card nets the most amount of cash back when you factor in the Freedom’s sign-up bonus vs the Discover it’s “Cashback Match.”

Since both of these cards offer 5X on rotating categories up to $1,500 per quarter and then 1X on all other purchases, the base earning rate will be the same for these comparisons. The question will be whether or not the doubling of the cash back from the Discover it out-earns the $175 sign-up bonus offered by the Freedom.

(Obviously, as just shown, there are some differences in the 5X categories between these two cards but to make the calculations simple, I’m going to assume the same amount of spend for the different 5X categories.)

1. Maxing out 5X bonus categories

If you spend $10,000 perfectly maxing out rotating bonus categories.

  • Discover it: $340 x 2 = $680 (6.8%)
  • Chase Freedom: $340 + (SUB $175) = $515 (5.2%)

If you spend $25,000 perfectly maxing out rotating bonus categories.

  • Discover it: $490 x 2 = $980 (3.9%)
  • Chase Freedom: $490 + (SUB $175) = $665 (2.7%)

2. Halfway maxing out 5X bonus categories

If you spend $10,000 perfectly halfway maxing out rotating bonus categories.

  • Discover it: $220 x 2 = $440 (4.4%)
  • Chase Freedom: $220 + (SUB $175) = $395 (3.95%)

If you spend $25,000 perfectly halfway maxing out rotating bonus categories.

  • Discover it: $370 x 2 = $740 (2.9%)
  • Chase Freedom:  $370+ (SUB $175) =$545 (2.2%)

As you can see, the Discover it earns significantly more cash back than the Chase Freedom does in the first year. The cash back rate even hits as high as 6.8% when you max out the bonus categories and spend $10,000. 

But remember what I said about redeeming my 60,000 Ultimate Rewards for 8.9 cents per point on Singapore Airlines? If I were to factor in that value into these calculations, it comes out to far more than the Discover it.

Let’s use the las $25,000 spend as an example.

At 2.2%, the Freedom would earn me 54,500 Ultimate Rewards (or $545 cash back). However, if I were to redeem these awards at 8.9 cents per point, I’d come out with $4,850.50 worth of value. That amounts to a return of 19.4%, which is far higher than anything the Discover it could offer. 

It’s true that Ultimate Reward redemptions won’t always be as sweet as that extreme example and there’s a difference between earning cash back that you can do whatever you want to do with versus earning points that are going towards pricey redemptions you wouldn’t otherwise book. However, it just goes to show that for a traveler, the value in travel currency can far outweigh the value of straight cash back from a card like the Discover it.

Also, don’t forget that the high cash back values for the Discover it will only last for 12 months. After that, you’ll be more limited compared to Ultimate Rewards, which will always have the potential to be redeemed at higher rates. 

Additional earning potential

The Discover it also has access to Discover Deals, which is a shopping portal where you can earn even more cash back savings when purchasing items from online retailers. The beauty of getting the Discover it is that Discover will also double the cash back earned in the first year from the shopping portal! And those points are in addition to what you’ll earn on the card. So if you hit a 5X category and found a great deal on Discover Deals like 5X at a place like Home Depot, you could earn 20X on those purchases!

Chase has the Ultimate Rewards  shopping portal but in order to get access to it you’ll have to have a premium card like the Sapphire Preferred® or the Ink Plus®. While the Ultimate Rewards shopping portal often has some of the best bonus rates, I don’t think it can compare with the potential first-year earnings of the Discover it with Discover Deals.

Final word

If you are just looking to earn cash back on a credit card, the Discover it will earn you more cash back. You’ll have to wait out the 12-month waiting period, but the additional cash back will be worth it, as you can sometimes net a few extra hundred dollars than the Freedom depending on your spending habits.

If you have a premium Chase card like the Sapphire Preferred or the Chase Ink Plus, and are focused on transferring Ultimate Rewards to a travel partner, then I would go with the Freedom, since you have the potential to redeem those points for more cents per point than the Discover it.