1 Key Step to Take Before Applying for That Amazing Credit Card Offer

Some offers aren't all they're cracked up to be.

When you're shopping around for a new credit card, you'll see plenty of rewards cards advertising how many points you can earn. Some cards have sign-up bonuses where you can earn 50,000 or 100,000 points after reaching a spending minimum. Others may earn five or six points per $1 in certain bonus categories.

You might think that more points are better and that you should choose whichever card gives you the opportunity to earn the most rewards. Although that seems like sound logic, it could cause you to pick the wrong card and miss out on another that would provide much more value.

Any time you're thinking of applying for a card that offers points, you need to figure out how valuable its points are.

Note: Certain cards refer to the rewards they earn as "miles" instead of "points," but these terms are interchangeable. I'll use "points" in this article for the sake of brevity.

What's a point worth?

The tricky thing about credit card points is that their value can vary considerably from card to card. One card may have points you can redeem for a value of $0.01 per point, whereas another card may have points that you can only redeem for $0.005 per point.

Let's say you find a credit card that earns six points per $1 in a category where you spend a lot of money every month. That sounds like an incredible deal, so you get the card. The problem is that you then discover those points are only worth $0.005 each, making that deal nowhere near as impressive.

To make it even more difficult, there are quite a few credit cards with points that don't have a fixed value. Airline credit cards often only let you use your points to book airfare, and hotel cards usually only let you use points for hotel stays. With these types of cards, it's harder to assign a value to the points they earn.

Fortunately, there are ways to find out how much any type of point is worth.

How to determine the value of a card's points

The first step to determine the value of a card's points is to check the redemption options. You should be able to find this information on the card issuer's website, either on the card page or in the terms and conditions for the card's rewards program.

As you're reviewing this information, look for any mention of the value you'll get per point when you redeem your rewards. Some cards will offer multiple redemption methods, each with a different value. For example, a card could offer $0.01 per point towards travel purchases or $0.005 per point in cash back. In that case, go with the highest value you find.

If you can't find this information anywhere, you can always call the credit card company.

What if there is no fixed value for a card's points, as is the case with many airline and hotel cards? There's a simple process you can use to come up with a reasonable value estimate:

1. Search for a flight or hotel stay with that company. Record the cash price.
2. Search for the same flight or hotel stay using that company's loyalty program. Record the price in points.
3. Divide the cash price by the number of points to get a per-point value.

It's best to run the numbers for multiple flights/hotel stays to get a more accurate average value. You may want to stick to travel bookings that you're likely to make in the future. That way, you can calculate how much value you personally will get from the card's points.

One step to ensure you're picking a winner

The adage "appearances can be deceiving" may not have been created with credit card offers in mind, but it does apply to them. You can never assume to know the value of a credit card's points. The only way to know for sure is to check. Once you know what a card's points are worth, you can see how it compares to all the top credit card offers.