I started to write this post as a follow up to my basic tips post but quickly realized that all of the tips were about credit cards and how to leverage them for free travel. In the past decade, credit cards have become the quickest and easiest way to earn miles and points. This post will talk about the different types of credit card points, bonus categories, and how to use credit cards without hurting your most important asset: your credit score.
Cards Cards Cards
Since the easiest way to get points and miles is credit cards, the best piece of advice is to get more credit cards. You should be able to get 40,000 to 60,000 per credit card which is huge for only a five minute application. For a lot of people, this falls into the category of too good to be true and they get nervous. They worry that it will ruin their credit score or that they’ll get in trouble with the banks or the IRS. This isn’t true at all. As long as you follow the rules, you’ll be just fine and it can even increase your credit score. The best part is that this scales perfectly. If you’re nervous, you can get one or two credit cards a year. If you’re feeling venturous, I’ve known of people getting as many as twelve a year for over a decade. While the information I’ve learned has come from many years of experience and from reading dozens of blogs, the absolute best resource for credit card applications is the Frugal Travel Guy. He really is an expert and has tons of great advice including my favorite: your credit score is your most important asset. Here are some of the general rules to follow when applying for credit cards for miles and points.
Understand how credit cards affect your credit score. The two biggest ways that credit cards affect your score are by the number of hard inquiries and your total credit limit. Every time somebody (other than you) checks your credit report, it gets noted in your report as an inquiry. There are two types of inquiries though, hard and soft inquiries. Soft inquiries are those that the phone company, cable company, or apartment complex do to make sure you should get service. Hard inquires are those done by lenders who are perceivably going to give you credit. Every hard inquiry on your credit report lowers it slightly but they get deleted off your report after two years. However, if you get a credit card, your total credit limit is increased and therefore your debt to credit ratio is reduced which raises your score. The general consensus is that when applying for credit cards, expect a short term drop in your score of 3-5 points per card. After a few months it will return to normal and may even be higher than when you started.
Make sure your credit score can support it. I would say that if your score is less than 700 you should focus first on raising your score rather than getting credit cards for the rewards. Plus, with a score this low, you won’t get approved for any of the good rewards cards. Most good cards need a credit score of around 750 at a minimum.
Start out slow! Trust me, I know how tempting it is to want to go out and apply for twelve cards your first year. But if you’re just starting out, you need to pace yourself. Apply for one or two cards and use them responsibly for the first few months before you apply for more, then slowly ramp up to the limit that is acceptable for you.
Don’t get cards you can’t afford. Most, but not all, cards have a minimum spending requirement. You have to spend a certain amount on the card before they give you the sign up bonus. Take into account all of the spending requirements of the cards you are applying for and make sure this is achievable with what you normally spend in that time frame. Don’t waste a credit inquiry on your credit report if you won’t be able to get the points for it. In a later post, I’ll show you how to increase your spending to meet these requirements.
Apply for cards on the same day. For the optimum performance, most people like to do what they call an “App-o-rama” where you apply for several new credit cards on the same day. The reason is that it takes a day for your credit card inquiry to show up on your credit report. If you apply for one card a day, the second, third, and forth credit card companies will see that you’ve been applying for several credit cards recently and will be nervous about why you need so much credit.
Wait 91 days between applications. Banks have a limit as to how often you can apply for their credit cards. Some banks like Citi are 60 days and others are 90 days. These are not hard and fast rules for sure; I’ve applied for cards a week apart before but only in very specific situations. Waiting 91 days is the easiest and safest method of avoiding getting turned down for too many recent inquiries.
Only apply for one credit card per bank each cycle. This doesn’t apply to business credit cards though since they are treated differently by the bank. At a maximum, every 91 days you can apply for one personal credit card and one business credit card from each bank.
Don’t apply for cards if you expect to get a mortgage soon. The value you get from a couple of cards is truly insignificant compared to the amount you will save on your mortgage if you score were higher.
Don’t cancel immediately. If you get a credit card, get the bonus, and then immediately cancel, you will get yourself banned by the bank. You are not at all profitable to them and they have no reason to want you to stay. So even if it isn’t a card you’ll be using often, just put it in the sock drawer and forget about it until you’ve had it for 10-11 months.
The Two Types of Credit Card Points
Credit card points are all generated the same way – with regular spending and signup bonuses – but how they are used can vary greatly. The most obvious type of points are those earned from a cobranded credit card like the Chase Hyatt card, the Citi American Airlines Card, or the American Express Delta card. Points earned on cobranded cards like these go straight into your airline or hotel account and can therefore only be used for that company.
The less obvious type of points are those earned from credit cards that aren’t cobranded. Instead of earning miles in an airline, you earn points in that bank’s program. The five largest companies with this setup are Chase Ultimate Rewards, Citi Thank You Points, American Express Membership Rewards, Capital One miles, and US Bank Flexperks. While these points systems are similar, they also have differences in how they can be used.
The first and easiest method of using these points is to use them as cash to pay for travel. Each point has a value, usually one cent per point, that you can use to pay for travel. The big benefit of this is that you don’t have to worry about blackout dates or availability. Since you’re using the points as cash, the points act just like cash would and if there’s a seat available you can buy it. And since you’re using it as cash, you get the miles from your flight which wouldn’t happen if you used the airline’s miles for an award flight. However, this also has downsides. Since the points required is based on the cash price, the number of points required can vary greatly. Last minute flights that would be really expensive with cash are also really expensive with points. The other disadvantage of this method is that the value you can get from your points is capped at one cent per mile (cpm). With airline miles and hotel points, I can usually get over 2 cpm and sometimes as much as 8 cpm so this isn’t always the optimum method but can be useful in certain situations. Flexperks differs slightly with redemptions starting at 20,000 points for a ticket up to $400.
The other prominent way to use points is to transfer them to partners of the bank’s program. The great benefit of this is that you don’t get locked down into one airline’s points only to decide you want to use a different airline for a trip. You can earn the points without worrying and then transfer them after you have made sure award flights are available on the airline you want. This is currently only available with Chase, Citi, and American Express. With this method you can get great value for your points, but you have to work a little harder at it. You can only transfer points in increments of 1000 and can only transfer to airlines and hotels that the bank partners with. American Express used to be the king in this arena but the past several years have seen Chase eat away until it is the dominate player in the transferable points market. Key Chase partners include: British Airways, United, Southwest, Marriott, IHG, and Hyatt. Key American Express partners include: British Airways, Delta, Singapore, Hilton, and Starwood. Citi Thank You points can currently only be transferred to Hilton. The advantage here is obviously Chase since it has more quality partners and more partners where it is possible to get a great redemption rate on your miles, but American Express comes in at a close second since they frequently offer transfer bonuses in the range of 30% – 50%.
Now that you have multiple credit cards, it’s time to start paying attention to the category bonuses on many credit cards. A good percentage of cards these days offer bonus miles/points when you use that credit card at merchants in specific categories. A good example is the Chase Sapphire Preferred card which offers double points on restaurants and travel (including airfare and hotels but not gas). Another example is the Chase Ink Bold which offers five times the points on office supplies, services like internet, cable, and telephone, and double points on hotels. Additionally, almost all airline and hotel branded credit cards offer bonus points when you use that card to buy products from the branded partner. Examples are bonus points when using the Hyatt credit card to pay for a hyatt hotel rooms or the American Airlines credit card to buy a flight on AA. Getting double points on a seven dollar fast food purchase might not seem like much, but over the course of a year, it can add up to thousands of miles for doing nothing more than remembering which credit card to use.