Travel credit cards can be very useful if you're going, or planning, a trip abroad. They can help in an emergency, save you money on foreign exchange, and even help minimise the cost of travel.
What are travel credit cards?
All credit cards offer their users the ability to make payments internationally. Indeed, payment processors often quote the many millions of places their products can be used globally as a benefit. However, the fact that your credit card can be used when travelling does not necessarily make it a smart choice. The fees typically applied when making international payments and cash withdrawals can make credit cards a very expensive way to pay. Of course, expense may be the last thing on your mind if you are using your card in an emergency, but what if you could get a card that could save you money on your travel costs - as well as being handy plan B? Well, you can with a travel credit card.
The term ‘travel credit card’ is used to describe a broad array of credit cards, which offer benefits to people who are travelling or planning to travel. Some of these products help their users to save money on the cost of their travel via points which are exchanged for flights, rail and other forms of travel. Other travel credit cards help their holders minimise (or eliminate) the fees traditionally charged for using credit cards abroad.
How do travel credit cards work?
In the most general terms, travel credit cards look and function in the same way as other credit cards. Users can make payments (or withdraw cash at an ATM). What sets these products apart is the benefits their terms and conditions deliver. These benefits broadly fall into two categories.
The most established type of travel reward product is the Air Mile credit card. These products offer customers points/miles to spend. The more a card holder spends, the more points they accrue. These points can then be exchanged for discounts on flights (or the whole flight if you have enough points) and other travel-related rewards, like free nights in hotels.
Although Air Mile credit cards are the most synonymous with travel, many other reward credit cards also offer travel-related benefits, like vouchers for rail travel, car hire, access to airport lounges and more. Indeed some standard reward cards even allow their users to convert their points to air miles for other schemes at a fixed exchange rate.
Lower Foreign Purchase Fees
Although all credit cards can be used abroad, it can prove a costly method of payment. Non-sterling transactions typically incur a fee of around 3%, which inflates the cost of every purchase. Also, ATM withdrawals incur immediate cash advance interest, which is higher than the standard interest rate, together with the non-sterling transaction fee. This can mean even holders of prime credit card products paying interest of over 25% APR as soon as they withdraw cash.
These fees can sometimes be avoided with the right travel credit card. For instance, some cards offer fee-free non-sterling transactions. The amount charged is still subject to the exchange rates applied by the paying platform (American Express/MasterCard/Visa), but these tend to be competitive with all but the very best foreign exchange bureaus. If this benefit is also coupled with 0% purchases (as it sometimes is), it enables users to use their card freely, without worrying about incurring immediate high interest.
Another way some cards enable their users to reduce fees while using their card for cash is the ability to pay fee-free for physical cash at select bureau de changes without incurring a cash transaction fee.
Can I get a travel credit card?
As with all credit cards, acceptance for a travel credit card is subject to you meeting the card issuers’ eligibility criteria. Unfortunately, the criteria for most travel credit cards tend towards people with better than average credit ratings. That said, albeit with a more limited choice, people with bad credit can still acquire a travel credit card.
Alternatives to travel credit cards
Unless you travel frequently, a travel credit card for foreign purchases might not be right for you. All lenders now assess the credit limits they offer customers based on their total available credit. If you have a travel credit card which offers few benefits in the UK, you may find your credit limit on other credit card(s) is restricted as lenders are wary that you could, at any point, 'max-out' your travel credit card.
In this instance, a good alternative, which can provide many of the benefits of travel credit cards, is a prepaid currency card. These cards use the same chip and pin security authentication as credit cards, the fees for withdrawing cash on them are lower than standard credit cards, and they often enable their users to 'lock-in' advantageous exchange rates well before they travel. Some also circumvent the traditional banking system by offering peer-to-peer exchanges which minimises the cost of exchange - to give you more bang for your buck/pound.
Obviously, Air Mile and Reward travel benefit cards are not necessarily intended to offer benefits while you are travelling. Instead, they are designed to help facilitate your travel by rewarding you for your UK spend. However, even these cards should also be considered carefully before application. Since the rates of interchange that credit card providers were able to charge merchants for accepting their cards were reduced in 2016, the value of the rewards available from credit cards has dropped dramatically. Because of the decline in the earn rate of rewards/miles, it is more important than ever before that you pay your balance in full every month, as any interest charges will quickly exceed the value of any rewards you receive. Be brutally honest with yourself regarding whether you can/will make your minimum payments every month in full. If you can't/won't, then different types of credit card (0% purchase, for instance) might be of more value.