Playing the Credit Card Game Well

 

Before getting to the meat of this post, I must preface this information in a warning. While credit card companies offer appetizing rewards for using their services, they are inherently predatory. Besides making money on processing fees, a large part of their revenue comes from the interest on the users debt. These companies have incentives to keep people in debt. According to Yahoo Finance, 55% of Americans carry a balance on their credit card from month to month. This means that they are likely living beyond their means and squandering money. I carried a balance for a single month and it was a terrible experience. I couldn’t imagine the burden due to the carrying continual credit card debt.

If these cards are so risky, why promote them? For fellow aspiring travelers, the risk is worth the reward. Credit card companies offer something called a welcome bonus, which is a pile of redeemable points. Typically, they can be used for hotels or just redeemed for cash, but I find they are best used on plane tickets. For example, accumulating a balance of 3000$ and paying it off within a three month time frame could yield 60,000-90,000 points. These points don’t have an exact dollar conversion, but this could be enough for a round trip international ticket to many destinations in the world. Furthermore, you are not paying for anything you weren’t going to buy already. You just pay for your bills and groceries on the card, pay your balance immediately and then stop using the card when you acquire the reward. This works especially well if you are traveling to a place with a favorable exchange rate for the dollar. Your plane ticket is free and you pay very little for your accommodations and activities. You get a luxury vacation for very little. So welcome bonuses from credit card companies are an indispensable tool for the avid traveler.

In order to be eligible for these bonuses, one must have established a good credit score, approximately 700 or higher. There are free services online, sometimes connected to your bank, that let you check your credit score. If you haven’t had a credit card before, you will need to build up your score to have the minimum score. It is quite simple. The first step is to payoff any outstanding bills, which may bring down your score. The next step is to go to your local bank branch and tell the you want to build your credit. They will offer you an entry level credit card that has no rewards. Simply purchase your groceries and pay your bills on this card for a few months. Pay it off every month, never leaving a balance. After a few months of faithfully paying your card, your bank will likely offer you a new credit card with a higher spending limit. This is a good indicator that your credit score is now high enough to play the credit card game. It is important to remember that the new credit cards you have access too will have appetizing rewards, but the interest rates are much higher. So it is essential that you get into the habit of not carrying a balance from month to month.

Now that you are eligible to get your free plane ticket to anywhere in the world, where do you go? Your best source of information on the current credit card welcome bonuses will be The Points Guy and Nerd Wallet. They are usually the first two results after searching “Credit Card Bonus (insert month) (insert year)” in Google. These sites will have all the most up to date information on the current credit card offers. After establishing that your credit score is high enough, there two important pieces of information to pay attention to.

The annual fee is what the company will charge you annually for having the card open. Typical annual fees are 0$, 95$, 250$, 395$ and 695$. You want the annual fee to not counteract the welcome bonus. I find the sweet spot are the cards with a 95$ annual fee. The ones with 0$ annual fees are nice because they charge you little, however the intro offer will be quite small. Occasionally I have applied for cards with fees of 250$. I would not advise applying for cards with higher annual fees unless you have a really well defined plan for getting the bonus.

The most important piece of information is the intro offer. Under welcome bonus, you need to check the minimum spending and the time frame in which it must be done in. An example of this would be spending 4,000$ within the first 3 months of opening the account. All you have to do is look at your upcoming bills and expenses and see if you anticipate spending that much money in the given time frame. Then you pay these expenses first on the card, then pay them off to get the reward.

Once you have a plan to get the bonus, now is the time to apply for a card. There a few ways to do this, and some are better than others. When you apply for a credit card, the credit card company has to check that you have a sufficient credit score. I don’t understand why, but in the process of checking they can actually lower your score a little bit. The concept of a hard credit inquiry vs a soft credit inquiry is explained well here. Even in checking your own credit score, you can even lower it. So I would always advise using soft credit inquiries if they are an option. After finding the credit card you would like to get, you can go to the website of the company that offers the card. For example, Capital One, Chase, American Express, Discover and Bank of America offer preapproval services. If the card you want has a preapproval option, do this instead of applying for it directly. Preapprovals don’t affect your credit score and they will let you know if you will be accepted. You are also not obligated to open the credit card if you are accepted, so you can use this as a way to compare your options. And if you are not accepted, you are still in a good position to go apply for another card.

Voila! Now you can fly anywhere in the world just by paying your bills in a sneaky way. Are there any constraints on buying the tickets? Yes, but not so much that they would defeat the purpose of playing the credit card game. You can’t actually use the points to purchase tickets directly from the airlines or 3^rd party services like Kayak. You have to redeem the rewards in the rewards terminal for the company that supplies the card. So not all ticket options are available to you. When I first heard this, I was quite skeptical. I travel mostly outside the U.S., so I was afraid there would not be tickets available for the places I wanted to travel. It turned out not to be the case. I used my AMEX points to buy a round trip ticket from Europe to Central Asia. Anywhere you would like to go, there is likely a ticket available. To make the most of your points, the same rules apply as buying a ticket the regular way. Buy as far as in advance as possible, check different days of the week, and look at nearby alternative airports.

This details everything you would need to know to successfully acquire a welcome offer and get a ticket to your next destination. But what does it look like to play this game over a long period of time? It is important to use the points and cancel the card within a year to avoid accruing the annual fee a second time. One sneaky strategy I use to avoid this issue is to have two credit cards open from the same company. Once I receive the larger welcome bonus, I transfer the reward points to the card that has a 0$ annual fee. Then I get to keep the points and not pay the large annual fee. But not all companies allow this maneuver, so it is important to plan ahead. Also, many bonuses cannot be obtained in back to back years. You usually must cancel the card and wait a couple of years before trying to get the welcome bonus again. This isn’t usually an issue because there are a variety of companies offering bonuses, so you can cycle through them. Some people have pointed out to me that opening and closing credit cards will negatively affect the credits score. I believe this is true if this is done month to month, but over a longer time period it seems to have little affect. I am typically able to get multiple international and domestic plane tickets each year just buy paying my bills in a roundabout way.

Bon Voyage! If you are considering getting the Chase Sapphire Preferred card, please consider using my referral link. You and I will get 15,000 reward points upon your completion of the intro offer. This is additional to the intro offer at the time of writing this, which is 60,000 points.