I’m pretty smart with money aside from one place: travel. This is particularly troubling as travel is our largest expense aside from housing. Though Jordan and I both value travel, we’ve never prioritized finding the best deals. Don’t get me wrong: we don’t usually spend recklessly. We’ll take public transportation. We try to book our flights early-ish to get reasonable fares. And we have found some great housing on Airbnb.
But using points and miles to make our travel cheaper? Credit card travel hacking is not something we do.
We began to realize that we should look into traveling on credit card points when we saw some of the insane things our friends were doing. One good friend used points to fly on this. Even my mom is better at using credit card miles than I am. She takes an annual trip to Hawaii and flies first class for free with her points.
Jordan and I decided that this year – in an effort to make our travel dollars stretch further – we needed to figure out how to use points. And it doesn’t seem difficult to do. There are so many websites dedicated to the art of travel hacking.
There was one thing we were both hesitant about: would this tarnish our stellar credit?
What’s credit card travel hacking?
Travel hacking is the process of getting free or discounted travel. And it’s more than scouring discount travel sites for deals. It includes strategically using points to nab free airline tickets, upgrades, and hotel rooms. It’s the reason you see Instagram posts of your friend holding a champagne glass in first class. #blessed.
Travel hacking begins with signing up for credit cards, meeting their spending requirements, and getting huge mile or points bonuses. These cards usually come with a pretty hefty annual fee, which is normally waived for the first year.
This is where I was stumped: would it affect my credit score to sign up and potentially close new credit cards?
How does your credit score get calculated?
Let’s back up and go over the basics of what affects your credit score. There are a number of things that go into calculating your credit score, but these are some of the most important:
Payment history: do you have a long history of making payments on time? Your credit score will likely go up as a result. Miss one payment – or more – and you’ll likely see your credit score take a hit.
Credit utilization: this is how much of your available credit is being used. For example, if you have $10,000 available in credit and you currently have a $2,000 credit card bill, your credit utilization is 20%. If your utilization is too high, it can affect your credit score because it looks like you’re overstretched.
Length of credit history: you know that card you’ve had since you were 18? That’s a good one to keep around because it helps lengthen your credit history. The longer your credit history, the better. Lenders are going to trust you a lot more if you have a long history of borrowing and paying on time.
Inquiry: each time someone inquires about your credit history and score (a “hard” inquiry), your score will drop a few points. It will recover, but applying for too many things at once can leave your score hurting for a while.
Types of credit: having more than one type of credit can help boost your score. Think student loan and a credit card.
Which factors are affected during credit card travel hacking?
When you’re opening different credit card accounts to earn points, a few of the factors above will be affected.
Your credit utilization can be positively affected. You’re opening a new account, which means you’ll have new credit available to you. If you don’t max it out, your credit utilization should, in theory, go down. If you currently have one credit card with a $10,000 maximum and you have a $2,000 your credit utilization is 20%. When you apply for a second credit card with a $10,000 maximum but you don’t have a balance on it, your credit utilization will fall to 10% ($2,000 / $20,000).
Your credit utilization can also be negatively affected. Most of these travel cards with fantastic deals come with an annual fee, which is likely waived the first year. The fee can be quite substantial. Once you’ve gotten a new card and earned the points, you might want to close the account before the one year mark to avoid being charged the annual fee. If you close the card and lose that available credit, your credit utilization will go down. Before you close the account try calling and see if they are willing to move you down to a lower tier card – one without an annual fee.
There are a few other ways your credit could be negatively impacted. These are likely minor and temporary for people who have a history of great credit.
New inquiry: Each time you have a new inquiry on your credit history, your score might drop a few points temporarily. It’s not usually anything to worry about, but because of this most expert travel hackers will space out the cards they sign up for, rather than signing up for a number of them all at once.
Credit history: Opening up a lot of new credit cards all at once will shorten the average age of your credit history. It’s generally NBD for someone who has a lengthy (and excellent) credit history. But for someone who doesn’t have a long credit history, shortening an already short credit history could damage your score.
How to credit card travel hack responsibly
Aside from making on-time payments and not carrying a large balance, you’ll need to be a bit more organized to ensure that opening and closing cards in your quest for points doesn’t hit your credit score.
- Use a spreadsheet to track details: there are a lot of details that you won’t want to leave to your less-than-reliable memory. Start a spreadsheet and note the date you opened the card, the deadline for hitting the spending requirement to receive the free points and the date that you’ll be charged the annual fee.
- Ask to downgrade your account: when you’re about to be charged that hefty annual fee and you’re debating closing your account, stop! Call the credit card company and ask if you can downgrade to a free account. This will keep your credit score from being penalized for a drop in utilization or a short average history.
- Set up automated payments: don’t ruin your payment history by opening up a credit card and then forgetting to make payments. Use the no budget, budget system to pay your credit cards at the beginning of each month.
- Aggregate your accounts: it’s important to go through your credit card and bank statements each month to ensure all of your charges are correct. But it can be time-consuming and you might find yourself letting it slip month after month. Use a tool like Mint or Personal Capital to aggregate your accounts so you’re able to scan through the purchases that hit your card all in one place.
- Keep track of your points: you’ve worked hard to get these points, so don’t lose them! I do have points scattered all over the place – and I’m sure a lot have expired. I won’t make this mistake again. You can keep track of all of your points through AwardWallet.
- Check your credit: you should do this as a responsible adulting thing, but when you’re opening and closing cards, keep an extra watchful eye on your credit. You can check your credit report for free and make sure that nothing suspicious has popped up. You can also check to make sure that travel hacking hasn’t negatively affected your score.
How we got started credit card travel hacking
Once I had done enough research to feel comfortable that Jordan and I should take advantage of points and stop overpaying for our travel, I wasn’t sure where to start. I wanted to know what credit card to apply for and how to use it to travel back to the US for free.
After some googling, I stumbled upon Club Thrifty. It’s a website run by a husband and wife duo Holly and Greg who have mastered the travel hacking game. There is an option on their site to send in your ideal itinerary and receive options for travel with points as well as a credit card recommendation. I sent in our details and shortly thereafter Holly replied. She listed the flights to take, how many points we would need and a recommendation for a credit card to sign up for.
To be clear, I’m in no way affiliated with Club Thrifty. I just truly enjoyed having Holly’s expert eyes and recommendation. We signed up for our credit card through her affiliate link so that she’d be compensated for recommending it, but we were under no obligation to do so.
After we received our credit card recommendation from Holly, we decided to stagger opening our credit cards. Jordan would apply for the new credit card first so we could hit the spending requirements and earn the miles. Afterward, I’d apply for the credit card and do the same thing.
Jordan opened the card we began browsing for flights to spend all of our new miles. As we were doing that, we came across insanely cheap flights from London to San Francisco. I’m talking about flight fares that you only dream about: under $500 for a roundtrip ticket between San Francisco and London.
While we had planned to use our new miles, it didn’t make sense to spend them on a ticket that was so well priced. Instead, we’ve stashed those miles away and are planning to use them next summer for a trip to Hawaii. Who knows, maybe by then we’ll have enough points to fly ourselves to Hawaii first class. Sipping Mai Tai’s the whole way.
Do you travel hack? What has your experience been like so far?
Erica Gellerman, CPA
Erica Gellerman is a CPA, MBA, personal finance writer, and founder of The Worth Project: a weekly money newsletter you actually want to read. Her work has been featured on Forbes, Money, Business Insider, The Everygirl, The Everymom, and Lifehacker. When she’s not writing about personal finance you can find Erica exploring Europe from her temporary home base in London.
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