The most profitable way to earn miles and points for travel is by signing up for miles and points earning credit cards that come with generous sign-up bonuses.
Understanding Credit Cards and Credit Scores
Knowing your credit score and how credit unions calculate that number is essential. Banks use your credit score to determine the risk in lending you money for loans and to determine credit card approvals.
Fico indicates that nearly two-thirds of your credit score is based on your payment history and the amounts you owe. The remaining factors look at how long you’ve had your accounts open and the types of credit extended to you.
When you apply for a credit card, your credit score can temporarily dip anywhere between 2-5 points, typically because of the “youth” of your new credit lines. Yet, banks also look at how much credit you have available and what percentage of that credit you’re actually using.
Imagine this scenario.
Your available credit is $10,000. If you currently have a $3,000 balance, then, you’re using 30% of your available credit.
A lower percentage, or the less credit in use, can help to boost your credit score because it means you aren’t running up debt and you’re paying off your balances. For those nerds out there like me who are clamoring for more, this is called your debt to credit ratio. 🙂
This leads to an inevitable and necessary next point.
Travel hacking success hinges on financial responsibility.
Keeping track of your monthly bills and paying them off on time is a must. If you start paying credit card late fees or high-interest fees, you’ll offset the value of the miles and points you are earning.
Not paying your bills and running up large credit card balances can also damage your credit score, which will make it harder to get approved for travel credit cards offering lucrative sign-up bonuses.
As a general rule, you’ll need a credit score of at least 700 to begin to travel hack. Credit Sesame is a quick, easy, and free way to check your credit score if you’re unsure or don’t already have a credit card that provides this perk.
Whether you manage a budget spreadsheet or use a money management service like Mint, you should have a firm system for paying bills and managing your spending before you begin applying for credit cards.
Let’s look at the most common questions people ask about applying for credit cards.
Which credit cards should I sign up for?
This depends on your travel goal, as well as on the airline and hotel options you researched. There may be a brand-specific card that will target your need that makes sense.
However, credit cards earning transferable points offer great flexibility for many travel goals.
American Express and Citibank have specific credit cards that also allow you to transfer your points to a variety of partners.
How often should I apply?
This depends on your travel goal, comfort level, and overall travel hacking strategy. Some people prefer to cherry pick and apply when they see best offers. Others complete a round of applications every 3-6 months. Generally speaking, the impact of new application credit inquiries on your credit score lessens after 3 months and continues to do so as more time passes.
As a beginner, you should start slowly and focus on 1-2 cards that bring you closer to your travel goal and offer flexible transfer partners.
How many credit cards can I apply for at one time?
You can typically apply for 2-3 credit cards at a time. If you have a spouse, he/she could also apply for 2-3 of his/her own. When applying for a few credit cards at the same time, it’s smart to apply from different banks to minimize the effect on your credit score report. Different banks use different credit unions to calculate your credit score.
Keep in mind the minimum spend requirements for each card so you don’t overextend yourself. There’s no sense in applying for a card you don’t need or on one that you’ll have trouble earning the sign-up bonus.
What about the annual fees?
Many travel credit cards offer to waive the annual fee for the first year. The value of an annual fee, though, has to be weighed against the benefits of a particular card and your travel goals. Annual fees are worth paying if you’re taking advantage of the card’s benefits. As you stay organized and keep track of your credit cards and points earnings, note the date of your credit card application and reassess each year.
Understanding how your credit score is determined and which credit cards will help you meet your travel goals will put you on the path of travel hacking success!
What are your feelings about applying for travel rewards credit cards?
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