There are many myths that float around in the credit card world. Credit card companies are in the business to make money (and they do) but I will show you how to extract the most while paying them the least amount possible.
• Why would a credit card company give me points that are worth hundreds of dollars just for signing up for a credit card?
First, any credit card promo that offers a large sign up bonus (IE 50k points) is going to require you to have good credit. Most of these banks are going to require a 690 + credit score. Now, there are many variables to their wacky approval algorithms, but generally, if you have not defaulted with that bank and you have a 690 & decent income, you will get approved. They are assuming that your good credit means that you will be a good low-risk customer.
The second thing with big bonus cards is that they generally require you to spend a minimum amount within 3 months in order to get the sign up bonus. Generally, this is anywhere from $1,000-$3,000 within 90 days. The CC company does recoup some of their losses (of giving you free stuff) by the transaction fees on your purchases. They charge the fee to the merchant, which is typically not passed onto you.
Finally, all travel credit cards offer bonuses on spend that you make, such as 2x on gas and groceries. They are hoping that after the sign up bonus you will continue to loyally use their card and incur more transaction fees and interest down the road. I am going to discuss more later why retention bonuses such as ‘2x on groceries & 3x on Starbucks purchases’ will not amount to much in the game of getting flights and hotels for dirt cheap/free.
I mentioned the word interest above, that word is a naughty word in my household. Interest calculation is rather confusing but the best part is that you won’t have to worry about it because you are going to pay off your balances in full every statement, right? Interest rates on travel credit cards are typically really high and honestly I don’t even read what they are in the terms because I don’t want to incur interest, ever. In all seriousness, incurring interest can quickly negate any bonuses that you earn so I advise against it. If you want to get a good 0% card, go for the Chase Slate, but it has no sign up bonus 🙂
• Will getting a couple credit cards hurt my score?
A credit inquiry will generally reduce your score by 2-5 points, but once that new account is open for a few months and your balance reports at zero (see above about paying off in full), that new account and available credit will definitely outweigh that one credit pull. Credit inquires stay on your credit for a few years but their weight is reduced after just a few months. Another big weight in determining your credit score is average age of accounts, so you will want to keep old accounts open even if you aren’t using them.
• If credit companies see that I am opening a bunch of credit cards at the same time will they be more likely deny me?
More likely, technically yes. Keep this in mind though, I have opened 9 credit cards this year and have never been declined. There is a trick to this called the app-o-rama. It is as much fun as it sounds, if not more.
Most banks auto approve your applications and generally don’t have a manual review by an underwriter (assuming you are rick-tick). That being the case, some red flags for their auto approval system are; number of recent inquires and credit utilization. Many banks will be more hesitant to approve you if you just applied for multiple credit cards in the past month, generally 90 + days since your last application is the safe number.
So an app-o-rama takes place when you submit 2-4 applications all on the same day (same hour is better) because the banks cannot see all the other inquiries immediately. If you do an app-o-rama every 91 days then you should be in the clear with getting auto approved every time.
• I don’t have good credit does that mean I am out of luck?
There are ways to save money on travel even if your credit score isn’t where you want it to be. I will talk more later about some travel hacks that will help save money on paid flights 🙂
• I don’t have an income but my spouse does, can I count that?
Almost all credit card applications use the verbiage “Household Income” on their forms. If you read the fine print, household income is money that you have available to you. So, if your spouse’s income is available to you, you can count it. Also, if both the husband and wife work, make sure to include both incomes in the total.
• I don’t make a ton of money, how am I supposed to spend $3,000 on a credit card in three months?
This is my favorite one of all. There are a number of ways to hit your minimum spend, I will briefly list a few:
– chargesmart.com, use this site to pay online bills (yes, even mortgage) with a credit card. They do charge a 2% fee, but if it means hitting your minimum spend ($500 in free flights), you eat the 2%.
– buying pin-enabled gift cards at the grocery store. You can go to the grocery store and buy debit gift cards in $500 increments for only $5.95. That is effectively a 1.2% fee, not bad. You can use those debit cards as, well, a debit card. It will give you a pin number and you can use anywhere debit can be used. Your credit card company should see this charge as a grocery purchase. I have bought over $5,000 in these gift cards and have never set off any flags by the CC company.
– pay for things for friends/family and get paid back. Have a friend about to buy a $1500 macbook with his/her debit card (pssshh), ask if you can purchase it on your card and they write you a check. Boom.