Unbiased credit card rankings: a work in progress

As a reader of this blog, you probably already know that you can find the best credit card signup offers on this page: Best credit card offers.  Since offers constantly come and go, we work hard not only to keep the offers up to date, but also to ensure that we have links to the best offers.  For example, we’ll choose a link offering 50,000 points plus a statement credit over a link offering 50,000 points alone.  Similarly, sometimes we’ll see two offers that appear to be the same, but one has a lower spend requirement.  In that case, we’ll always show the lower spend offer.  In some cases, the best offers are targeted or semi-targeted.  In those cases, we publish the best public offer and also link to information showing how to see if you can qualify for a better offer.

One problem with our Best credit card offers page is that it is organized by bank and by reward type (bank points, airline cards, hotel cards, cash back).  This is a logical organization, but its not particularly helpful for those who are just starting out.  The best offers page currently contains a whopping 88 separate “best” offers.  Given that, how would anyone know which are the best of the best?

Unbiased credit card rankings: Balance

To address this problem, I’m developing new credit card pages that will show offers sorted best to worst.  Since this is a work in progress at this point, the only page that I’m ready to show is: Top 10+ Hotel Credit Card Offers.  And even that page isn’t truly done.  I intend to expand the methodology to include all of the Best Offers, but I haven’t yet decided whether they’ll all be lumped together or separated out by type (e.g. Top Airline Offers, Top Cash Back Offers, etc.).  Maybe I’ll lump them all together and provide an easy way to filter to one type or another.  We’ll see.

Defining “Best”

There are many reasons a credit card may be considered “best”.  Some cards are best for their perks; some for their rewards for everyday spend; and some for their signup bonuses.  For some, it is critical to have cards with no foreign transaction fees.  Others prioritize cards with no annual fee.  Some prefer Amex cards, while others prefer Visa, MasterCard, or even Discover.

In general, if you’re going to answer the question of which cards are best, you better be prepared to first answer “best for what?”  For the purpose of this post and the new page I’ve published, “best” means “best first year value”.

Many other blogs and websites have their own list of the “best” offers, but in all cases that I know of, those lists are completely subjective and are often extremely biased.  My goal here is to create an objective and unbiased ranking.

For each credit card on the Best Offers page, I’ve estimated the card’s first year value as follows:

(Estimated value of bonus points + Estimated value of other bonuses)

Minus

(Estimated cost of minimum spend requirement + first year annual fee)

Let’s look at each…

Estimated value of bonus points

This one is pretty easy.  I simply used the latest Fair Trading Prices to estimate the value of each point and then I multiplied by the number of bonus points offered.  Fair Trading Prices are estimates of the usual cost of acquiring points.  Follow the links on this page for complete details.

Example 1:

  • Current Fair Trading Price for IHG points = 0.55 cents per point.
  • The Chase IHG card currently offers a 60,000 point signup bonus
  • Estimated value of bonus points = 60,000 X 0.55 = 33,000 cents / 100 = $330.

Example 2:

  • Current Fair Trading Price for SPG points = 2.16 cents per point.
  • The Amex SPG card currently offers a 25,000 point signup bonus
  • Estimated value of bonus points = 25,000 X 2.16 = 54,000 cents = $540.

Estimated value of other bonuses

This one is a bit tougher.  Credit cards offer all kinds of great perks that are hard to quantify.  For example, many airline cards offer free checked bags.  That’s worth a lot, right?  But if you have elite status and get your bags for free anyway, then the perk is worth nothing.

I decided to be very conservative about estimating first year bonuses.  I’ve decided to count only three types of bonuses and perks (in addition to bonus points):

  • Free nights (or other free things) given as part of a signup bonus
  • Statement credits given as part of a signup bonus
  • Statement credits available each year (in which case, I count only the first year credits)

Valuing free nights:

Some credit cards offer free hotel nights as their primary signup bonus.  My initial method of valuing these nights was as follows:

Maximum number of points that would be required for the same free nights X .75 fudge factor X Fair Trading Price

For example, the Ritz credit card currently offers two free nights in any Category 1 through 4 hotel.  Category 4 hotels normally require 60,000 points per night and the current Fair Trading Price for Ritz / Marriott points is 0.55.  But, of course, the cardholder might redeem for a lower category hotel (hence the .75 fudge factor).  So:

Ritz 2 free nights = 2 X 60,000 X .75 X 0.55 = 49,500 cents = $495

Next, let’s look at the Hyatt credit card that offers 2 free nights at any property.  The Hyatt free night award chart currently tops out at 30,000 points for a standard room, and the current Fair Trading Price is 1.11.  So:

Hyatt 2 free nights = 2 X 30,000 X .75 X 1.11 = 49,950 cents = $499.50

Let’s look at one more: The Hilton Reserve credit card offers 2 free weekend nights in almost any Hilton property.  Hilton free night awards top out at 95,000 points (found here), and the current Fair Trading Price is 0.45.  Since the free nights here are restricted to weekend nights they’re not as valuable as free nights at any time, so I decided to add a second.75 fudge factor to the equation:

Hilton 2 free weekend nights = 2 X 95,000 X .75 X .75 (weekend fudge factor) X 0.45 = 48,093 cents = $480.93

Do you see a pattern here?  Using the above methodology, in all 3 examples, the 2 night bonuses are estimated to be worth about $500.  This coincidence turned out to be quite fortunate because I didn’t otherwise know how to estimate the value of the Fairmont credit card’s 2 free nights since Fairmont doesn’t have a points based program that works with this methodology.  So, instead, I simply declared the 2 free Fairmont nights to be worth $500.  In fact, to keep things simple, I went back to all three cards and set the 2 night value to $500.

Statement credits:

Statement credits vary quite a bit as to how easy they are to obtain.  For example, the $50 statement credit available with the Hyatt signup bonus is super easy: you get $50 after your first purchase with the card.  At the other end of the spectrum is the Citi Hilton HHonors Visa card which, at the time of this writing, has a special offer that includes a $25 statement credit after spending $200 or more with select car rental brands within the first 4 months of account opening.  Yeesh.  Somewhere in-between the two offers, is the Citi Hilton HHonors Reserve card which offers a $100 statement credit on your first hotel stay within the first 3 months of account opening.

In the examples given above, the Hyatt card’s $50 is practically automatic so I value it at face value.  The Citi Hilton card’s $25 credit, on the other hand, has such an extreme requirement that I’ve valued it at zero.  If you can get the credit, great, but its hardly worth going out of your way for.  The $100 statement credit that comes with the Hilton Reserve card seems a bit more reasonable.  After all, those who sign up for a Hilton card presumably plan to actually stay at some Hilton properties.  Still, since its not automatic, I applied a .75 fudge factor to this bonus (.75 X $100 = $75).

The Ritz Carlton card offers another type of statement credit: up to $300 per calendar year in airline fee reimbursements.  Since these credits are available all year and can be earned from fees spent on any airline, I expect that these credits will be easier to obtain.  As a result, I applied a .9 fudge factor rather than .75.  In other words, I valued the $300 in credits at $270.  An astute reader may point out that it is possible to earn the $300 statement credits twice in your first year of card membership (since the $300 limit is based on calendar year, not account year), but I made a deliberate conservative decision to count annual benefits only once.

Estimated cost of minimum spend requirement

Almost all credit card signup offers have minimum spend requirements.  In general, smaller spend requirements are better than big ones.  I estimated the cost of the spend requirement by assuming that you would have put the same amount of spend on a 2% cash back card if you hadn’t signed up for this card.  In other words, when you spend $1,000 on your new Hyatt card, you will earn 1,000 Hyatt points, but you’ll also give up $20 in cash back that you would have earned from a 2% cash back card.

The cost of the minimum spend requirement is calculated as follows:

Value earned from spend (Points earned per dollar X Minimum Spend Requirement X Fair Trading Price)

Minus

Opportunity cost of spend (2% of Minimum Spend Requirement)

Let’s flesh out the Hyatt example:

Value earned from spend: 1 X $1,000 X 1.11 = 1,110 cents / 100 = $11.10

Minus

Opportunity cost of spend: 2% of $1,000 = $20

= –$8.90

A complete example

Remember that the overall calculation for each card’s first year value is:

(Estimated value of bonus points + Estimated value of other bonuses)

Minus

(Estimated cost of minimum spend requirement + first year annual fee)

Let’s now look at the best Hyatt credit card offer at the time of this writing: 2 Free nights after $1K spend in 3 months + $50 statement credit after first purchase + 5,000 points for adding authorized user.  Annual fee waived first year, then $75.

Next, let’s calculate each of the components of the above equation:

  • Estimated value of bonus points: $55.50 (5000 bonus points X 1.11 / 100)
  • Estimated value of other bonuses: $550 ($500 for 2 free nights + $50 statement credit)
  • Estimated cost of minimum spend requirement: $7.80
  • First year annual fee: $0

Now, let’s put it all together:

($55.50 + $550) – ($8.90) = $596.60

Viewing the results

You can find the new hotel credit card page here: Top 10+ Hotel Credit Card Offers.

Please take a look and see what you think.  Keep in mind that the value estimates are just that: estimates.  While the numbers appear to be precise, there are obviously many assumptions that go into the calculations.  I think it’s best to think of the estimates as directional.  They exist to help estimate the relative value of one signup bonus compared to another.

Reader feedback.

As I wrote in the beginning, this is very much a work in progress.  Rather than waiting until it was 100% done, I thought it would be useful to get something out there for you to react to.  Is it valuable as is?  What can be done to improve it?  Please comment below.

About Greg The Frequent Miler

Greg is the owner, founder, and primary author of the Frequent Miler. He earns millions of points and miles each year, mostly without flying, and dedicates this blog to teaching others how to do the same.

More articles by Greg The Frequent Miler »

Regarding comments: Comments posted at the bottom of Frequent Miler pages and posts are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.

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Ricardo
Guest
Ricardo

Thanks for the good work!
Would “acceptance or usability” of the card be a factor?
I love my SPG card(s), but I have found that AMEX cards are difficult to use, especially overseas.
Linked partially with that, “foreign transaction fees (FTFs)” might be relevant. I found that before SPG eliminated FTFs, they would mysteriously sneak in when purchasing on Ebay when buying on US Ebay from a foreign based seller.

Rick I
Guest
Rick I

I like the formula just as it is.

Thanks Greg

ramesh shah
Guest
ramesh shah

very nice work and good efforts which are helpful

JP
Guest
JP

This is fabulous and tremendously helpful. Love seeing everything quantified. Thank you!!

Dave
Guest
Dave

You should check your math. The IHG bonus is worth $330 (60,000 * .55)/100. I stopped reading there but others are probably wrong too.

Levi
Guest
Levi

excellent work – thank you – I might just add a “added date” for each entry – like when you added/updated the offer – so we can just “see” different limited offers, etc.

Cogswell
Guest
Cogswell

Interesting analysis – some comments:

1. Room rates for chain hotels – all chain hotels are massively overpriced. You could get a decent room pretty much anywhere in the world for around $50-150 per night depending on where you are. And this gives you the full flexibility of staying at any conveniently located hotel. In addition, with chain hotels you will inevitably pay much more for add-ons like mandatory valet parking, resort fees, wifi, overpriced food/drink, tips, etc… I think “Hilton 2 free weekend nights” should be valued around $200 total… The irony is that I’m sure Hilton still comes out ahead even when giving someone a free night!

2. Looking at a credit for one free night at a Hyatt – additional things to factor in and which need to be valued:
a. Opportunity costs – if paying cash for one night you earn hotel points, credit card spending points, cash back portal points, progress towards status. This can easily be valued at 15-20% of the room cost
b. Illiquidity – a ‘free night’ is an extrememly illiquid item. Would you prefer a free night ‘worth’ $250, or $250 cash which can be invested (would typically earn $20 in a year in the stock market) or spent on anything? The free night also means I’m committed to the Hyatt which more often that not means it’s not in the absolutely ideal location. Is it an extra $5 cab ride or 10-minute walk?
c. I’m also more likely to stay beyond the free night and pay for additional nights, at which point I’m massively overpaying again (see 1 above)
d. Expiration risk of the credit, if applicable

3. Time – the elephant in the room – how much time does all of this take and how much do you value sacrificing your free time? Keep in mind that just 15 minutes per day spent tracking, reading, understanding, organizing, booking, meeting spending requirements, valued at $100/hour = a whopping $9,125/year in lost time

MarkD
Guest
MarkD

@Cogswell – I think you might be over-analyzing this just a tad…

It’s clear you’re not a fan of hotel CC bonus signups. To each, his/her own.

Cogswell
Guest
Cogswell

@MarkD – I don’t think it’s over analyzing. You have to be honest about the costs. Frequentmiler does a lot of the work but there are some things missing.

People are very good at convincing themselves they are getting great value and are beating the system, but when you break it down it’s very overvalued.

Net Netty
Guest
Net Netty

Cogwell is correct on many points including the over valuing of the price of a hotel room. They time value of money and the “what your time costs” gets trickier as someone would need an income that would replace that $100/hr metric. Most ppl arent valued at 200k a yr in salary. more are in the 15-30$/hr

Wicked Gringo
Guest
Wicked Gringo

Maybe you could add the name of the bank that issues the card for extra visibility. The cards I was interested in are from Chase and I’m not going to waste my time with Chase anymore because the 5/24 policy will kill my chances of getting one.

Connor
Guest

I believe the Chase 5/24 is related only to cards that generate UR points. I’ve heard that hotel cards are not affected. Correct me if I’m wrong 🙂

JL100
Guest
JL100

Surprised your Wyndham and Marriott cards are so low. For the two Wyndham cards I received for my spouse and I, I am getting 4 nights on each card for $1,000 in spending. We are going to use them for 4 $200 nights each, so we’ll get at least $800 out of each card. For Marriott, we always get at least 1 cent/point value, typically 35,000 points for a $400/room, so that would be worth $700 and the fee is waived in year 1. We really would pay cash for these rooms at these rates and have in the past at both chains, so it’s not a hypothetical for us. These are outstanding resort facilities that cannot be compared to just a hotel room. Granted this is more of an ideal case, but still thought $200-300 was really low for these.

Steven
Guest
Steven

I really appreciate your efforts. You really seem to have our interests at heart. Other sites are only interested in $$. Thank you for your help, honesty and transparency.

Steven

Net Netty
Guest
Net Netty

Im not sure if you are being sarcastic or not. But wow that is one naive comment there.

Wingit
Guest
Wingit

With Marriott, the annual cat 1-5 certif is almost unusable for me (finding a hotel nearby any place of interest for a weekend stay, etc.). When I first started w/ this card, Marriott only had 7 categories, now they have 9.

Dan
Guest
Dan

Very well done. I appreciate the amount of work this took.

JL100
Guest
JL100

Agree – I never use the Marriott certs either. Where we go is a cat 7.

JustSaying
Guest
JustSaying

Not to complicate matters but best offers is only the first of the puzzle………the ability to use the card to generate 5X or other multiples is dramatic……..ie what Ink does for your monthly bonus spend……….and what Discover is doing for your rebate pocketbook……….but I applaud the quest you are attempting……….

Net Netty
Guest
Net Netty

to many …………………’s

Jeff
Guest
Jeff

If I were putting this together, here is how I would resolve all the different valuations people have:

Include a few questions – with the answers directing the responder to a list most suited to them.

For instance: How do you use points/freebies? Whether someone just wants cheap stays or likes to live it up in luxury is going to quickly determine how they would value a Hyatt with 2 free nights vs say Marriott card with 50,000 (or 70,000) bonus points.

Do you prefer Flights or Hotels?

Do you enjoy the rewards of putting in effort to find good rates or want to keep it simple? (IHG vs. Starwood)

A small matrix of questions, I think – paired with a deeper set of valuations attributed to the different reward cards – would take some effort to set up but be very powerful in terms of getting people a customized priority list of cards.

credit
Guest
credit

Amortize it over two years. Include the annual fee and the anniversary gift and calculate value over two years.

Sign on bonus on Hilton may be low but it had no annual fee. Doesn’t hurt to apply.

Yada Yada Yada

Brian
Guest
Brian

Great effort! Quantifying these things is so hard because the more time you spend working with these points/freebies, the more you realize that it’s all very personal and dependent on your own unique situation and how you are going to use the points. Having said that, the order of this list feels true to me. If I were going to suggest 5 hotel credit cards to a newbie, your top 5 would be my choices, too.

Connor
Guest

FM — I thought the Chase Fairmont discontinued to 2 free airport lounge visits?? I believe I received a letter stating as much.

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[…] little over a week ago, I introduced unbiased credit card rankings, specifically for hotel credit card signup bonuses  Since then, I’ve enhanced the methodology a […]

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[…] recently. As he notes still a work in progress in some areas but I found it all very useful… http://frequentmiler.boardingarea.co…k-in-progress/ […]

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[…] you can see in this post, our unbiased valuation of “2-free-night” signup offers has been $500. If I halve that […]