Updated on March 26, 2014
Updated on March 26, 2014
Indeed the biggest way travel-hackers earn their frequent flyer miles is by signing up for lots and lots of credit-cards just for the bonuses they provide. But 20 credit cards sounds like a lot, and it really makes people (understandably) nervous.
Which brings up a few things you MUST know before getting your 20 credit cards.
1.) What’s the BEST CARD?
Upon getting the concept of acquiring credit cards just for the bonuses, people always ask, “Ok what’s the best credit card for me to sign up for?” This answer changes all the time because the bonuses change all the time. So don’t jump all over an article from 2011 saying the British Airways card is offering a 100,000 point bonus. Yes, it does occasionally have a 100,000 point bonus, but not right now. Now its bonus is half that. Still good, but not the best it’s had.
We like to recommend the Chase Ink Bold card which currently has a 50,000 point offer and because having this card allows you to transfer your points to a bunch of different mileage programs. But that’s what happens to be the lucrative card right now. If the Chase Sapphire Preferred card increases its bonus (now only at 40,000 points), maybe I’d recommend that one instead. Or of course if the British Airways card came back with its 100,000 point bonus… you get the idea.
2.) You may not get approved
This may sound obvious, but not everyone who signs up for these great cards is going to get approved for them. For instance, if you’ve never had a credit card before in your life, it may be some time before you can get into the hobby full-force. Because getting approved means having a good credit-score, and first you need to have credit-history before you can have a credit-score.
If you’ve never had a credit card before, the high earning cards with annual fees are not the cards you’ll want to go for. Go for something you know you can keep forever, like the Chase Freedom card which has no annual fee and still will earn points on various categories that change each quarter.
Keep in mind, the points earned from this card can’t be transferred to a mileage program until you also get a card that offers transfers as a perk (like the Chase Ink Bold or Chase Sapphire Preferred Card.) But once you’ve had the no annual fee card for a year or more and have shown your trust-worthiness, you’ll be ready to apply for one of the aforementioned cards. With a bit of credit history built up, you will be more likely to be approved.
3.) Is travel-hacking bad for your credit score?
Speaking of credit-score gets people nervous and they fear that travel-hacking is going to ruin their score. This is false. If you use credit cards poorly, yes your credit score will suffer, but if you follow this hobby the way you’re supposed to, it can even help your credit score. This is of course assuming you are not going to max out every credit card you get. In fact, it’s assuming that having the credit card will not make you any more of an actual spender than you were before.
Let me explain. Travel-hacking really mostly affects two factors that contribute to your score: length of history and lines of credit open.
> Length of history
You’re more likely to lend money to a friend you’ve known for a long time. Credit bureau’s are similar. They want to see that your trustworthiness can be tracked as far back as possible.
The concept of travel-hacking involves canceling a card before the annual fee kicks in. (After all, many of the cards we get are just for the bonuses). This means you’ll start adding up 1 year credit-line lengths that bring down your average length of history.
In order to counteract this, there are some strategic things you can do.
1.) For instance, you can make sure you have one or two no annual fee cards you intend on keeping, (like the Chase Freedom card mentioned above.)
2.) Also, you can sign up for some points-earning cards that can be downgraded at the end of the year (after you’ve received the bonus you were after) into a no annual fee card, and thus remain on your record as an open line of credit.
> Lines of credit open
This is where travel-hacking can really help your credit score. Believe it or not, the credit bureaus want to see lots of lines of credit in your history. They don’t want to see that you were trustworthy with that one card you got in college and forgot about. They want to see that you’ve had cards or even many cards, a loan, and a retail card and that you’ve been trustworthy with them all. Think about it, which sounds better: “She paid me back that one time…so I guess it’s ok to lend her money.” Or, “She pays me back every single time…so I know it’s ok to lend her money.”
The biggest thing to remember here though is that this only works to your advantage if you are not falling into the spending trap with all of these cards. The credit bureaus want to see lots of good history. This means on-time payments and a use of 0-10% of the credit limit offered to you.
4.) Aren’t miles really hard to use?
Wrong. Sometimes they can even get you a better ticket than cash would. For instance, United has awesome rules for its roundtrip award tickets, allowing one stop over, and two open-jaws per round-trip award ticket. On a cash ticket, this would change your price but for a rewards ticket, it doesn’t have to.
Let’s use the Chase Ink Bold bonus to show a real example of a ticket you could book with those miles. 50K Ultimate Reward Points could be transferred into 50K United miles. With that, you could go from the U.S. to Cancun where you can stay as long as you want, then on to Lima, Peru for as long as you want, then back to the U.S. And that’s not even as complex as it gets, because in that example we’ve only used our allowed stopover and haven’t even gotten into “open-jaws”.
That’s a free ticket that includes the Caribbean and South America for free just because you signed up for a credit card that will probably end up improving your credit score.
Whew! That’s just the beginning. Remember, this is how my husband and I go everywhere.