Credit Cards 101
The easiest way to get travel benefits that are usually only available to true "frequent travelers", and to earn earn huge numbers of reward points that you can use for free airline tickets and hotel rooms, is to sign up for travel and reward credit cards.
Credit card benefits and rewards are the core of many of our travel strategies. And as long as you can handle credit, signing up for a bunch of new credit cards won't destroy your credit rating—it just may improve it.
Is it crazy to apply for new credit cards, just for the travel benefits?
It might seem foolish to sign up for a bunch of new credit cards, just to take advantage of their travel rewards and benefits. For many people who are new to “travel hacking”, our advice may fly in the face in how they currently think about credit cards.
You may believe that getting a bunch of new credit cards simply isn’t possible, will hurt your credit score, or will be a huge pain to manage. But, the truth is that most of our readers have nothing to fear about signing up for multiple travel and reward credit cards.
- Applying for credit cards won’t kill your credit score—it is likely to improve it. Many people’s credit scores go up, rather than down, as they start to get new cards. It isn't unusual to have your score go up 50-100 points.
- Credit card companies will approve you for a surprising number of cards. If you have good credit, credit card companies desperately want your business. That is why they offer such lucrative signup offers and travel benefits, in the first place. It is sort of shocking how many credit cards you can get. With some banks, you can can even get multiple copies of the same exact same card.
- It you are organized, it won’t take a lot of time. It takes a few minutes to sign up for the card, and a bit of effort to track your initial spending (to make sure you qualify for the signup bonus). However, if you are at least a little bit organized, it doesn’t take very much time, and the corresponding benefits are large. You’ll want to make sure to set up automatic payments to pay off the balance in full every month. We provide step-by-step guides that show you how to make this as easy as possible.
- You don’t have to walk around with a dozen credit cards in your wallet. Once you’ve spent enough to qualify for the signup bonus, you can put many credit cards away, perhaps occasionally retrieving them when you need to take advantage of one of their unique benefits. While you might be getting a handful of credit cards, you aren’t going to be using most of them as part of your day-to-day life.
Credit scores typically go up because of the way they are calculated. One of the biggest factors in your credit score is “credit utilization”, which is the percentage of your available credit that you are using each month. When you get new cards, your overall credit limit goes up. Since your spending should stay the same, your credit utilization rate drops. Even though nothing has really changed with your finances, you look like a better credit risk, and your score goes up.
Of course, as you start getting lots of cards, this effect goes away, and getting a new credit will cause a small, but temporary, dip to your credit rating. For more details, see Signing Up for Travel and Reward Credit Cards Won't Kill Your Credit Rating.
You can get eventually get two, three, a half dozen, or a dozen different cards, each with their own unique benefits. Or cycle through dozens of credit cards, jut to collect their signup bonuses. You just need to religiously pay off every card each month, have a decent organizational system in place, and avoid letting the new cards affect the amount of money you actually spend. Hundreds of thousands of fellow travelers have been taking advantage of credit card rewards, benefits, and signup bonuses for years; and you probably should too.
Getting new credit cards isn’t for everyone
While getting travel credit cards makes sense for most of our readers (and is the easiest way to get more for your travel dollars), it isn’t right for everyone.
- If you are going to spend even a little bit more money because you have more credit, stay far, far away. You don’t want to get into debt or save less money, just because you were trying to get some extra points and miles.
- If you aren’t going to be organized enough, stay away. For this strategy to make any sense, you absolutely must pay off your credit card balance each month. If you don’t, you'll wind up paying fees and interest, which will quickly overwhelm the value of the rewards you get. To some degree, the bank is betting that you’ll screw-up—you need to make sure they lose that bet. We’ve provide some advice for how to manage your cards, but if you aren’t organized enough, you should stick with our simplest plans.
- If you think you will need a major loan in the next year or two, take it slow. There may be a small hit to your credit rating for up to a year after getting a card. If you expect to get a big loan soon, you want to avoid any possibility of having to pay a higher mortgage or auto rate. In addition, banks will consider the combined credit limits for all your credit cards as potential debt that can cause you to get into credit trouble. If you've already signed up for a bunch of cards, you may need to cancel some to make sure that your debt to income ratio is inline. Go super slowly, monitor your credit score, and wait till after you get the loan to go crazy with lots of cards.
- If your credit rating is low, you may not be able to get approved. You don’t need to have an amazing credit rating to get approved for many of the best credit cards (although you will still get rejected for some), but most of the better cards are only available to people with higher scores. If your score is below 720 or so, you will want to keep things slow. If your score is below 700, you may have trouble getting many of the cards that we talk about. If your score is below 670, you probably need to build up your credit first. These scores are just rough guidelines, as credit approval depends on the specifics of your credit report, as well as other factors such as your annual income.
- If you haven’t been responsibly using a credit card for a couple of years, make sure you can do it first. You may think that you can handle having a bunch of credit capacity, but you can never be sure until you’ve been using a credit card for some time, without building up debt or missing payments. Get started with a single new card and come back to enhanced strategies in a couple of years.
If you don’t pay off your existing cards in full each month, that’s a good sign that you shouldn't follow most of our credit card strategies.
If getting new credit cards doesn’t work for you, you'll need to stick with our regular strategies for saving on your travel purchases. You’ll miss out on the opportunity for a lot of free travel and benefits, but you’ll still save money on all the traveling you do—and you won’t wind up racking up unnecessary fees and penalties or getting into more debt.
The 6 levels of using travel credit cards
While many of our travel strategies revolve around credit cards, the strategies you should use depend on how comfortable you are at signing up for new cards and how much effort you want to make.
- Level 1: Get a good rewards card and use it whenever you can. The simplest place to start is to make sure you get a credit card that offers a good reward rate, and start using it, instead of cash or checks, whenever you can. By simply using a good reward card, you'll slowly and surely earn enough points for free airplane tickets and hotel rooms. If you make an effort to use your card to pay for as many expenses as you can, you'll increase the amount of free travel you can earn each year. Get a Great General Purpose Reward Card and Use It for All of Your Spending.
- Level 2: Put together a credit card collection that works for you. Many credit cards provide valuable travel benefits. Most people should gradually build up a core collection of credit cards that provide worthwhile benefits, based on the ways they travel and spend their money. For example, based on your travel patterns, you might want to get a premium card that offers airport lounge access, the credit card for your favorite airline (in order to get free checked bags), and a card that provides free breakfast at Hilton hotels. Along with the ongoing benefits, you'll also earn bonus points for signing up for each of these cards. Build Up a Core Credit Card Collection for Travel Benefits and Rewards.
- Level 3: Sign up for credit cards just to earn their signup bonuses. Rather than only signing up for the cards that have valuable ongoing benefits, you can continue to sign up for new cards, just to earn their lucrative signup bonuses. It is surprising how many cards you can get before banks start staying no, or your credit rating starts going down. With very little effort you can earn enough points for dozens of free hotel rooms and frequent flyer tickets. Credit Card Signup Bonuses: The Easiest Path to Free Airplane Tickets and Hotel Nights.
- Level 4: Use multiple cards to optimize the points you earn from your spending. Many credit cards provide bonus rewards for purchases in certain categories. For example, a card may earn 3x rewards on travel and restaurants, or 2x rewards on gas and groceries. To fully optimize the number of points you earn, you would get and use the cards that earn the highest possible rewards in each different category. Because signup bonuses are a much faster way to acquire points, not everyone wants to make the extra effort to move on to this level. Some people don’t want to worry about remembering to use the right card for each type of purchase. But, other people wouldn’t dream of missing out on the extra points. Optimize Rewards by Using Different Cards for Different Purchases.
- Level 5: Fully leverage rotating category and pick-your-category cards. The best bonus category reward rates are mostly from cards where the categories change every quarter. It takes extra effort to register your card every quarter and find a way to make sure you spend as much of the quarterly limit as possible. Usually, this will require purchasing gift cards at various types and stores, and then using those gift cards for some of your other purchases. Earn 5-10% in Rewards with Rotating Category Cards.
- Level 6: Increase your credit card charges, without spending any more of your money ("Manufactured Spending"). Advanced reward point enthusiasts generate large amounts of extra points by taking advantage of opportunities to generate additional credit card spending, without really spending any of their money. For example, they may buy Visa gift cards, use those gift cards to purchase money orders, deposit their money orders in their bank account, and then use the funds to pay off the gift card purchases. In the end, they are really only spending a small amount of fees, but they are generating points on large amounts of purchases. Most of these approaches require lots of research and effort and aren't recommended for most travelers. Earn More Credit Card Points with Manufactured Spending.
Dealing with the Chase 5/24 rule
Everyone who is interested in travel and reward credit cards needs to understand the Chase “5/24 rule”.
Chase is one of the two most important travel credit card companies, and along with American Express, offers many of the best travel and reward credit cards.
Unfortunately, Chase won't approve you for any of their credit cards, if you've signed up for 5 or more credit cards in the last 24 months. This counts all the credit cards you have signed up for, from any bank, not just the ones that you got from Chase.
Since you are probably about to signup for several new credit cards, you’ll soon be ineligible to get any of the Chase cards that are affected by the rule.
That means that you need to get these cards first, before you get any other new cards.
Even in the unusual case, where none of these cards makes sense for your core credit card collection, most people should still start out by signing up for as many of them as they can, just to take advantage of their signup bonuses. Chase has some of the most valuable signup offers available, and if you don't get them now, it may be a long time before you are eligible to get them again. Dealing with the Chase 5/24 Rule.
Just to be clear, even before you get most or all of the cards that you want to make part of your core credit card collection, you should get several Chase cards first.
Managing your credit card collection
If you are organized, it doesn’t take much time and effort to manage the entire process of getting, using, and getting rid of your credit cards. You can use whatever plan works for you, or follow our step-by-step guides.
- If there is more than one adult in your household, you can each sign up for credit cards. Often one person will take on responsibility for managing the process for any less-interested participants. Signing up for multiple copies of the same cards, gives you access to double the signup bonuses, and twice as many free night or companion certificates.
- Use bill paying services to use your credit cards for more of your spending. If your ability to get new cards is constrained by your ability to meet the initial spending requirements, you can increase your amount of credit card spending by taking advantages of services that pay bills that you normally can’t use your credit card for. You’ll typically have to pay a fee. However, the fees can be a small price to pay , compared to the value of the additional signup bonus. Pay Any Bill with a Credit Card (To Increase Your Credit Card Spending).
- When you are ready, check out our advanced credit card strategies to optimize your credit card collection, reap even more rewards, and get access to additional benefits. Credit Card Strategies.
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