On the last post, I talked about how you can get started with a few resources like the Matrix that can help you off-set the costs of your trips. If you haven’t already read that, here’s a link! Of course, every trip is going to cost money, I won’t promise you free flights and hotels and all that, but what if I told you there was a way to improve your experiences and the quality of your travel? Or maybe you just want to travel as much as possible? You can do that too! You might be asking yourself right about now, “How? Is this where he tries to sell me some multi-level-marketing thing? Is this a pyramid scheme? Will the cops knock on my door?” Well, I promise that this is not any of these things!! It’s a simple (and legal) concept really: credit card sign-up bonuses. Here’s a quick rundown a credit card sign-up bonus (SUB) works: you apply for a new card, from that date you usually have a certain amount of time that you have to reach the minimum spend requirement (MSR). As long, you meet the MSR, you get that card’s sign up bonus. For example, I recently applied for the Amex Platinum. I have a three (3) month period in which I need to spend $5,000, and if I do that, I will earn a SUB of 100,000 American Express Membership Rewards points! Easy enough, right? Let me give you some tips to get started so you can earn some points and miles, and plan your next trip when we are allowed to travel again!
Tip #1: PAY YOUR FULL BALANCE EVERY MONTH!
Read that tip one more time. And again. Got it? Good! This is by far the most important advice I could give you, and if you cannot do this , these credit card bonuses will end up doing you more harm than good! Usually, the types of credit cards that come with these nice sign-up bonuses do not have 0 APR. That means that every month you don’t pay your card in full, you’ll be charged interest. That interest can quickly snowball to a point where you end up losing money instead of coming ahead, and that’s no fun! So make sure you always have a budget, in order to be able to pay off your credit card in full every month!
Tip #2: Check your Credit Score for FREE!
Right, the next thing you should do is to take a look at your credit score. Why? Well, you need to know exactly where you stand in terms of your credit score. To oversimplify this, the higher your score is to 850, the better chances you will have of getting the “higher-end” travel cards. Annual Credit Report is the best way to get your most accurate credit reports, and it’s free! Usually, you can request your credit report from Experian, TransUnion and Equifax once a year each for free. Due to COVID-19, you are now able to your report every week from any of them until April 2021! Here are the five (5) main factors that affect your credit score:
- Payment History: this is the single biggest factor in your FICO score. Lenders want to see that you are able to pay your debts on time, so even ONE missed payment can affect you! This counts for 35% of your FICO score!
- Utilization: this is the percentage that you use of the total credit that is extended to you. If you use over 30% of your total credit limit, that will make you look like a risk to lenders. You should aim to stay below 30% or for even better scores, under 10%. This counts for 30% of your FICO score!
- Account Length: this takes a look at your oldest account age, newest account age, and the average age of your accounts. The older your account, the higher the score. This counts for 15% of your FICO score!
- Credit mix: this takes a look at all your credit accounts like mortgages, car loans, student loans, etc. It counts for 10% of your FICO score!
- New accounts: this looks at the accounts that you recently opened, this is important because of certain bank rules like Chase’s 5/24, which I will discuss in another post. This accounts for 10% of your FICO score!
Tip #3: Have a Travel Goal in Mind!
I can’t stress enough how important this is. Think of that dream trip that you want to take and where you want to go, how you want to get there, where do you want to stay. For me, that first big trip that I wanted was Australia, I knew that I wanted to go there, but I also wanted to fly there specifically with Emirates, and most importantly: in first class on an A380 since the A380 is a double decker plane with an onboard shower and bar lounge! That helped me a lot having a goal, something to look forward to. When you have something to strive for, you are forced to come up with a plan as to what you have to do exactly to achieve that goal of yours. That helps a lot making sure that everything that you’re doing has a purpose to it of getting you to your dream destination! It also helps you begin to answer the next topic that we are going to talk about!
Tip #4: Cashback or Points/Miles- That is the Question!
Now that you have a better understanding of how your credit score is doing and where exactly you want to go, you should probably take a bit to decide between the two main options that you have with rewards credit cards. Do you want cashback or do you want a card that earns you those valuable points and miles towards your next trip? Before we take a better look at each option, let me preface by saying that there is no right answer to this, it is totally up to you on what you like best!
In light of the current situation, many people would probably choose to go with cashback for now, after all, cash is king! It is currently unknown when we will all be able to get back to our normal daily lives and take trips, so if you are looking to just get some cash in return for your spending, cashback is certainly the way. You can always take those trips in the future after you saved up some of the cash you got back and use that to help you fund those trips! One reason to not choose cashback is if you wanted to get an even better redemption. For example, $200 is the equivalent of 20k Chase points. You can either cash that out as $200, which would be a 1 cent per point redemption, or you could use those 20k points to book a night at a property like Park Hyatt Sydney, which goes for about $1,000/night. The latter gives you 5 cents per point redemption, which one would you prefer?
With points and miles, you get more flexibility to search for the best deal and better point redemptions like in the example above! As an example, my next big trip is hopefully going to be a redemption for the ANA Round-the-World Award. I’m currently looking to earn enough Amex points to transfer 125k points to ANA and book that trip. I would be flying over 21,000 miles around the world, in business class for just 125k ANA Mileage Club points. That was part of the reason I applied for the Amex Platinum’s 100k offer since it Amex points transfer to ANA at a 1:1 ratio! It is definitely not all positives for points and miles, though, one of the biggest negatives is that you are always vulnerable to devaluations. For example, United Airlines recently changed the award structure of its MileagePlus program from a fixed chart to a new, dynamic pricing award structure. United is certainly not the first to do that, and it won’t be the last program to do it. Before the current COVID-19 situation that we are living through, Hyatt’s World of Hyatt program was about to undergo that same change, but those plans have been postponed.
Tip #5: The Annual Fee Conundrum
Right, you decided where you wanted to go, you came up with a plan and decided what type of reward card you want to apply for. So far so good, as you’re shopping around, though, you keep noticing that these cards you really want have an annual fee. Now, you could be the kind of person that is completely against annual fees, and that’s okay! The question is: when does it make sense to pay an annual fee for a card? Well, the answer is quite simple: it makes sense to pay as long as you are getting more in return for what you pay. Let’s take a look at this example: the Amex Platinum has a $550 annual fee, and that scares some people and it’s a bit scary for me as well, but looking at least in the first year, I am coming out ahead in this deal. The 100k SUB is valued at about $2,000 (2 cents per point), it comes with a credit for Global Entry/TSA Pre-check of $100, a Priority Pass membership for airport lounge access which would be worth about $429 (since it’s like the Prestige package on the Priority Pass website). It also gives me access to the Amex Centurion Lounge network for Centurion and Platinum cardholders; there’s no set value for that since you can’t pay to get into those lounges. But, in times like these, even when you’re not traveling, you are still coming out ahead in the first year. With a big bonus and just registering for that $100 Global Entry credit, you are receiving over $2,000 worth in benefits while paying $550!
Couple more things to keep in mind about annual fees. First, and this may be super basic and common knowledge, but it was something I was not aware of when I first started. You will pay the annual fee on your card after the first statement closes. Keep that in mind. Another thing is to look out and even ask for offers. Looking out for offers just means check if on the card application there is a promotion like “annual fee waived the first year!”, some cards do that but it is far from a guarantee! When your second annual fee hits, you should call your bank and check to see if there any retention offers. Banks may offer you an incentive to renew your card, kind of like another “bonus.” They don’t want to lose your business, so they may give you an offer/reward to stay, but again there’s no such guarantee with that!
Side note: if you are active-duty military, banks tend to waive your annual fees, so it definitely would make sense to pick up some annual fee cards! Be sure to check with the bank if they do that first, though!
Bottom Line
Credit cards are a great way to improve the quality of your travel, the quantity of your travel, or both! Be sure to pay off your cards in full every month and choose the card or cards that best fit your goals!
Let me know what you think! This is the first post of a series of credit card related posts! What is your favorite travel card? Any cards you’re looking to get?