Can co-branded credit cards issued by banks and linked to your favorite stores, airlines or hotels really help you score better perks and rewards than regular cards?
If you’re loyal to a brand, a co-branded card may have an edge over other types of credit cards. But a co-branded card is not always a good choice.
This guide will help you take a closer look at the traits of co-branded cards, including some of their pros and cons.
What Are Co-Branded Credit Cards?
A co-branded credit card is a partnership between a card issuer and a brand, whether it’s a retailer, an airline, a hotel or even an investment advisor. You can use the card for purchases while earning rewards, discounts or special loyalty perks for the brand.
Co-branded cards may go by other names, such as private-label credit cards, proprietary credit cards and retail store cards. The concept is that consumers are incentivized to be loyal to that brand, and spend more on that particular company’s goods and services.
How Does a Co-Branded Credit Card Work?
Co-branded credit cards don’t all work the same. For instance, some co-branded store cards can only be used for purchases with that specific retailer, while other co-branded cards work just like a regular credit card.
What they all have in common, however, is that you can expect rewards or perks for being a cardholder; and the more you spend, the more rewards you can earn. For example, if you’re someone who does a ton of shopping on Amazon, it could benefit you to use the Amazon Rewards Visa Signature Card, which is issued by Chase. It works like a cash back card, with 3% cash back awarded for Amazon.com and Whole Foods purchases, but you’ll also get 2% back at drugstores, gas stations and restaurants, and 1% back on all other purchases.
A more complex rewards card is the United Explorer Card from Chase, designed for frequent flyers on United Airlines. This card gives rewards in miles that can be redeemed for flights. Cardholders also get travel-related benefits including priority boarding, two one-time passes to the United Club lounge each year, and up to a $100 credit for Global Entry or TSA PreCheck fees.
Another reason to consider a co-branded card is if you’re a “status chaser” — someone who wants to reach a certain level in a loyalty program that unlocks extra benefits. This is most common with airline and hotel cards. The Hilton Honors American Express Card, for example, grants complimentary Hilton Honors Silver status to cardholders, which means perks like getting your fifth night free when you stay at a Hilton hotel. This is in addition to bonus points you’ll earn for spending on Hilton purchases, as well as at gas stations, supermarkets and restaurants.
If you tend to stick with the same airline, hotel or retail brand, co-branded cards can help you maximize your spending habits and, in some cases, provide an upgraded or VIP-like experience.
[Read: Best Rewards Credit Cards.]
Is Getting a Co-Branded Card Worth It?
Co-branded cards are designed for a specific customer: someone who spends and interacts a lot with a particular brand. Michael Foguth, founder of Foguth Financial Group, a financial planning firm with offices in Michigan, uses a co-branded card for flights with an airline he is loyal to.
“I’m not trying to force my rewards to work for me; it’s what I would do anyway,” Foguth says.
Of course, not every co-branded card is a good idea for everyone, says David Almonte, certified public accountant and member of the American Institute of CPAs’ Financial Literacy Commission. The group leads CPAs in a national effort to advance the financial literacy of Americans.
“The biggest mistake you can make is having a reward card that doesn’t match up with your spending habits,” Almonte says.
Ask yourself these questions to figure out whether a co-branded credit card is right for you:
How Brand Loyal Are You?
If you’re only shopping with a retailer a couple of times a year, a co-branded store card won’t make sense for you.
And if you take just one family vacation each year, airline or hotel cards may lack long-term benefits. That is, unless you save all of your credit card rewards to book with the airline or hotel chain for your annual trip.
But if you book travel several times a year and use the same airline or hotel chain, a co-branded card can help you access perks and earn rewards.
Are Perks and Rewards More Valuable to You Than Cash Back?
See how cash back and general rewards cards stack up to any co-branded cards you’re considering.
Because some cash back cards can earn 2% back or two points per dollar, any co-branded card you choose should earn at least that much on most card purchases. Or it should make up value in benefits, such as free hotel room upgrades or checked bags when you fly with an airline.
Do You Have a Goal in Mind?
Some people open a co-branded card well before a trip to stockpile points or miles for use when booking. However, be careful about spending beyond your means to earn a sign-up bonus or to collect points toward future savings.
“Getting 50,000 frequent flyer miles is not worth going into debt,” Almonte says. “There is a dark side. If you know you already have a credit card you can’t pay off on time, the chances of you being able to get another card and have it under control is close to none.”
Also, just because you earn a free flight from an airline, a co-branded card doesn’t give you carte blanche to overspend on the rest of your vacation.
“Keep in mind a holistic view of expenses,” Almonte says. “If you’re using points for airfare, think about how you’re going to pay for your hotel, food and a rental car. It’s still not a free trip.”
What Are the Card Costs?
Co-branded cards, especially higher-end travel cards, may have an annual fee, and some co-branded cards have higher annual percentage rates than regular credit cards. You’ll want to figure out whether the value you’ll get from a card will outweigh the cost.
Look for extra benefits that will save you money. Does a hotel co-branded card guarantee a free one-night stay each year, for example? Does an airline card get you free checked bags every time you fly?
The goal with your credit card APR should be to avoid paying finance charges. If you don’t think you will pay your bill in full each month, a rewards card isn’t a good choice.
Once you start revolving a balance, interest charges will eat away at your earnings. Opening a card only to get points and without thinking about how you’ll pay the bill is a classic mistake, Almonte says.
[Read: Best Store Credit Cards.]
The Pros and Cons of Co-Branded Credit Cards
Anytime you choose a new credit card, especially a co-branded one, you should do a deep dive to figure out if it’s worth it. Here are some pros and cons of co-branded cards to consider:
— Get rewarded for brand loyalty to save on future purchases or earn cash back.
— Enjoy cardholder-exclusive benefits and perks.
— Some cards have generous sign-up bonuses or welcome offers.
— Achieve automatic status or a faster route to higher status in the brand’s loyalty program.
— You may be less inclined to shop around for better deals or try other brands.
— This type of card frequently has an annual fee.
— Redemption options may be limited.
— APR is typically higher.
Crunch the Numbers Before You Apply
Do you truly know what you are getting into? Even if you are a responsible credit user who pays bills in full and on time, you could get burned by not learning, say, how your card’s rewards program works. Be prepared to dig into the details, Almonte says.
“Just read the fine print, and make sure that what you’re signing up for is what you want,” he says.
With co-branded cards, in particular, your rewards may be locked into the brand’s redemption options. Hotels and airlines often let you use rewards across several brands, but that option is still less flexible than miles or cash back from a general travel rewards card.
Whether you plan to apply for a co-branded or traditional credit card, Almonte says, make sure you do these two things: “Have a baseline understanding of how your finances work, and know what they are trying to sell you.”
One final tip: Most people’s spending and travel habits tend to change over time, or they change in response to things going on in the world, as we saw with the pandemic, says Almonte. In other words, a co-branded card that was perfect for you three years ago might provide less value for you today. Or you may be spending a great deal with a new brand that you just discovered and decide that its co-branded card is worth getting.
“It is never a bad thing to reassess our spending and savings habits, especially when something significant occurs in our lives,” Almonte says.
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