“What about my credit score?“
I’ve been asked this question a lot recently with all the incredible credit card offers out there. First, if you’re young and just getting started, your credit is a huge asset and you don’t want to mess with just to earn some miles. That being said, if you’re an adult who has used credit responsibly for years, does consistently applying for cards really hurt your score? Each person is different but, for the most part, it can actually help increase your score. Credit is calculated like this:
1. Payment history, 35% – Late bill payments will crush your score more than anything
2. Credit utilization, 30% – This is what you owe vs. your available credit. That’s why it’s great to have cards with no annual fees you can keep open forever. Other things that help are: (1)getting increases in credit limits and, (2)of course, paying off balances every month. If you normally carry balances each month, you shouldn’t even get involved in this game.
3. Length of credit history, 15%– This is another reason to love those no annual fee cards and hold on to them forever. As your credit history gets longer, your score gets better. These first 3 items make up the majority of your credit score (80%). The other 20% comes from:
4. Types of credit used, 10%– Having different types of credit (car loan, credit card, student loan, mortgage, etc.) will help your credit score.
5. Recent searches for credit, 10% – Credit inquiries stay on your report for two years. Getting denied doesn’t do a thing to your score. But, yes, applying for a card, car loan, or mortgage are things that will ding your score – but, again, we’re talking about minor dings here if your score is strong. And you do get those points back. Not to mention, if you’re approved for the card, something very positive happens…your available credit goes up (see item 2).
So to answer the original question, how many cards should you apply for? Some mileage hounds apply for 2 cards per quarter, some limit it to 1 per month. It varies. This is what many credit experts recommend – every 91 days, do a new “churn.” Meaning, apply for a new batch of cards 91 days after the last batch of applications. Do them all the same day. How many you apply for in the batch is up to you, and depends on how high your credit score is. If it’s average, 2 to 5 is usually a good number. If your score is high, even 10 isn’t unheard of. If you’re buying a home, it’s a good idea to stop applying for cards 6 months before you start your home loan paperwork. And if you choose not to do the 91-day churning schedule, it’s smart to alternate applications among banks (example: Barclays’ US Air card, then Bank Of America’s Virgin card, then Citibank’s American Airlines card, then Chase’s British Airways card, etc).
Chase is by far the bank with the most mileage cards (British, Continental, United, Hyatt, Southwest, and many more). It’s a good rule of thumb to wait a few months between Chase card applications (at least 3, and you’re definitely safe after 6). At the very least, absolutely wait a month with Chase. If you do push it and only wait those 30 days, it can still work in your favor. Lets say you get denied. You should immediately call Chase’s reconsideration line. Tell them how badly you want the card. They’ll let you lower credit limits on other cards or exchange existing cards to get you approved. If it’s a no-go and you still really want the card, just wait 3 months and apply again. For Citibank, try to wait 3 to 6 months between applications.
Finally, after you’ve gotten a few cards approved, you’re going to have a bunch of annual fees to keep track of. It’s smart to keep a spreadsheet that tracks when annual fees will be charged. This way, you have the option of closing accounts the month before the fees are charged. When you call, they usually waive the fee or offer you a no-fee alternative. I have a few cards that give 5,000 to 10,000 miles on every anniversary date. To me, a card like that is worth paying the fee on. You’re essentially buying miles at a great price once a year. The key is to just stay organized and you won’t be paying many fees.
As you know, lots of mileage cards require a minimum spend (for example, the British Airways card requires $2500 in spending within 3 months to get the 100,000 miles). If you can’t spend enough to get the miles on all these cards, here are the best ways to get around the problem:
- Paypal – If you’re willing to pay a 3% fee, just send money to a friend who will immediately cut you a check. Lets say I’ve only spent $1500 on my British Air card and my 3 months is about to be over. I can paypal a buddy $1000 and collect my 100,000 miles (obviously, pick a friend who will give the money back to you).
- Amazon Payments – Same idea as above, but with $1000 max per month
- The little problem with both of those is that you have to involve someone else. The big problem is being charged a fee. I prefer to order Visa and American Express gift cards from Big Crumbs. Not only do I avoid being charged fees, but I actually get a nice little cashback bonus every month from my gift card purchases. And, of course, I earn miles with every purchase.
- Ordering coins. You can order $1000 in dollar coins every 10 days from the U.S. Mint. This has been around for a long time, so it’s not as easy as it once was. Coin shipments are delayed lately, which is a big pain. It can also be a challenge to find banks that will accept the coins.
I just got some feedback telling me this blog is missing an important post. I was asked, “How do I do all this stuff??” I guess I’ve never explained the basics, so here it goes:
Everyone has heard of frequent flyer programs, even if they don’t know exactly what they are. Each airline has their own program, and the more miles you gather within it, the more benefits you receive towards flights and upgrades. For an example of what things cost, to fly to India and back, you’d need over 100,000 miles per person. The traditional way of accumulating miles has been by actually paying for flights, but times have changed. Through the methods explained in this post, I’ve picked up almost a million miles in the first half of this year without flying. Here is a step-by-step guide to the basics of this process:
- Google airlines and go to their websites. Go to their mileage program page and register a user name and password. Here are some of the big ones: United, Continental, US Airways, Delta, British Air. And here are free miles for signing up with Alaska and American Airlines.
- Miles do expire, but if you follow this step, it’s easy to keep that from happening. Things like flying, using a credit card, and downloading itunes songs will extend expiration dates 18 months. It’s a lot to keep track of, so Step 2 is going to Award Wallet and setting up an account. You load all your mileage accounts and they email you when something is close to expiring.
- Get familiar with the 2 main alliances. If you have miles with one airline, you can use them on flights with the other airlines in the alliance. Here they are: Star Alliance and OneWorld. For an example, British Airways has high fees on award tickets. But they are OneWorld partners with American Airlines and Cathay Pacific (one of the best first-class airlines in the world). So you can gather British Air miles without actually needing to fly on British Air.
- Out-of-pocket, a first-class flight to Hong Kong costs roughly $20,000. That means you’d have to make roughly $35,000 before taxes just to pay for this trip. Or you could just pay for it with miles. That’s an example of the huge money you can save. But you’ll have to make changes. The majority of this game involves credit cards. If your credit score isn’t great, make sure you fix it before trying to dive in. If you do have great credit, you have to change how you spend – no more cash and no more debit cards. So if you don’t have the discipline to pay off credit cards every month, again, this isn’t for you. Lastly, you’re going to be applying/opening/closing a lot of credit cards, so you need to be organized. Keep a spreadsheet with important information on all cards you’re applying for (date applied, how much you have to spend to get bonus miles, and when you have to spend it by). Most importantly, you need to keep track of when annual fees will be charged. That way, you can close the card at the 11-month mark, getting the miles without having to pay the fee. The majority of the time, when you call to close a card, they’ll end up waiving the charge or giving you a no-fee alternative of the card.