Premium credit cards help you travel in style for next to nothing, but are they right for you?
With the rise of lucrative sign-up bonuses and rock-bottom flight prices, travel rewards credit cards have become immensely popular. Amongst them, premium credit cards offer the biggest sign-up bonuses and highest rewards rates, along with highly useful benefits like primary rental car insurance and luxury perks like complimentary airport lounge access, elevated status with airlines and hotel chains, and generous travel credits.
Of course, premium benefits come with a premium price. The annual fee on most of these credit cards ranges from $450 to $595, which probably sounds like a high price to pay for a credit card.
That being said, if you take advantage of their rewards and statement credits, these benefits easily make up for the annual fee -- sometimes more than two times over. Here are some signs that it’s time to apply for a premium credit card.
1. You have excellent credit
In order to qualify for any premium credit card, you’ll need to have a good credit score. Folks who have excellent credit scores -- in other words, a FICO® Score of 800 or above -- should have no problem qualifying. In fact, as long as your credit score is at 740 or above, your chances of approval are high.
If you have good credit -- a FICO® Score ranging from 670 to 739 -- you’ve still got a chance of being approved for a premium credit card. The credit score threshold for most of these cards tends to be around 690 to 720.
2. You travel frequently
Premium credit cards tend to be centered around travel rewards rather than cash-back rewards. The most common perks offered by premium credit cards are:
- Complimentary airport lounge access
- Statement credits that can be applied to travel, airline, and Uber purchases
- Global Entry or TSA Pre✔® Fee Credit
- Trip insurance
- Rental car insurance
To make the most of these benefits, you’ll need to be traveling at least a few times each year. If you travel for work or fly internationally on a regular basis, even better. For example, most premium credit cards come with a free Priority Pass, which gets you free airport lounge access to over 1,200 lounges worldwide. However, only a few dozen of those lounges are within the United States, and they’re often located in the international terminal.
The statement credits offered by premium credit cards are one of the easiest ways to make up for the annual fee. However, they typically apply to travel purchases -- some credit cards will apply them to any travel purchase, while others will only apply them to airline fees on one airline of your choice. Frequent travelers will have no problem making use of these.
3. You can rack up a lot of spending
While luxury perks are nice to have, rewards points are where these premium credit cards really show their value. Their sign-up bonuses alone are often valued at $750, but you’ll usually need to spend at least $4,000 or $5,000 in the first few months in order to get them. After that, you’ll want to maintain a level of spending within the card’s bonus categories that keeps you earning enough rewards to recoup the annual fee.
For example, one popular premium credit card offers 3 points per $1 spent on travel and dining worldwide. Let’s say you travel for work often, so you average about $2,000 per month between flights, hotels, and rental cars. You also take clients out for dinner regularly, so you spend around $1,000 per month on dining. This means you’d earn 9,000 points per month, or 108,000 points per year, based on those two spending categories, which could easily get you $1,500-plus in travel purchases. A premium credit card is a no-brainer.
On the other hand, let’s say you only travel a few times each year, so your average monthly spending on travel is $300. You also tend to eat at home and only spend around $100 per month on dining. This means you’d earn 1,200 points per month, or 14,400 per year -- a value of $200 to $250. Suddenly, it’s not so easy to justify the annual fee.
4. You understand how to maximize credit card rewards
Even if you spend enough to rack up a point balance in the triple digits each year, those points are worthless if you don’t understand how to redeem them. Most rewards programs come with a number of redemption options, and some will net you tons of value while others will leave you spending all your points and not getting much in return.
A lot of knowledge goes into maximizing how you earn and redeem credit card points, so if you’ve never had a rewards credit card before, you might want to start with one that has a low or no annual fee before you jump up to the big leagues. This will help you get a feel for how to accumulate points quickly, which type of rewards you prefer, and how to strategically redeem those rewards for maximum value.
5. You always pay your balance off in full each month
Finally, this should go without saying, but you should be sure that you can pay off your balance in full each month before applying for a premium credit card. If you’re looking to finance a purchase, consider a 0% intro APR credit card instead. Carrying a balance on any credit card is costly, but it’ll put an even bigger dent in your wallet with a premium credit card, as they tend to come with higher interest rates.
If you’ve decided that high annual fee is worth it, get ready to enjoy free vacations and a more comfortable travel experience.
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