We often talk about using special travel hacking tricks to achieve our travel dreams. One of the most efficient is to strategically enroll in credit cards to take advantage of points and miles techniques.
We’ve all been on a flight and the airline talk about signing up for the its credit card. Well, did you know that some of those cards could be your golden ticket to your dream destination?
Credit cards allow you the opportunity for:
- Sign-up bonuses worth $500+ in many cases
- Benefits in exchange for the annual fee (think Groupons)
- Rewards on your monthly spending (such as 5x categories)
- Anniversary bonuses and retention offers
But credit cards can be dangerous, since you’re playing with fire.
Before we talk about the fun stuff, there’s a few things we need to discuss about credit.
The Number One Rule of Travel Hacking
Always pay off all your credit card statements in full every month.
If you currently have revolving credit card debt, travel hacking is honestly not a good idea. Seriously.
Travel rewards credit cards generally have higher than average interest rates – often over 15%.
If you carry a balance on travel cards, the banks will absolutely make their money back.
Never pay interest.
Learn How FICO Scores Work
People often the ask us: doesn’t applying for credit cards hurt your credit?
The short answer is, no.
The long answer requires understanding how your credit score is calculated.
Your credit score attempts to measure your ability to pay back what you owe. The three major credit bureaus – Experian, Equifax, and Transunion – keep information reported about you by your creditors.
Each bureau apply an algorithm to its report on you that provides a an estimate of your ability to pay back money they lend you. This number is your FICO score.
Actually, each bureau gives you a different FICO score, so make sure you know all three!
In general, your FICO score is based on a number of factors that are weighted differently.
- 35% is based on how well you’ve made on-time payments in the past
- 30% is based on your account balances and credit limit
- 15% is based on the length of your credit history, including oldest account and average age
- 10% is based on hard inquiries from applications for new credit, among other things
- 10% is based on the types of debts you have, such as mortgages vs
An important concept to understand is utilization. Divide what you spend on a card each month by your credit limit to calculate your utilization percent.
For example, if have one card with a $2,000 limit and charge $400, your utilization is 20%. When you have multiple cards, that same $400 can be spread across accounts to lower your utilization.
A good rule of thumb is to try to keep your utilization below 10% and never allow it to pass 50%.
When You Apply for a New Credit Card
The financial institution will order a report of your credit and place a hard inquiry with one or more credit bureau.
This hard inquiry usually lowers your score, but only by a few points.
Prefer to Use Your Debit Card?
If you don’t have any credit cards, you should strongly consider using one.
To put it bluntly, using a debit card for everyday purchases is financially irresponsible_________________.
Free Websites for Checking Your Credit Score
Never, ever, pay to check your own credit score.
There are many places to check your scores for free, and it won’t hurt your credit to check it.
Here are direct links that we use:
- Experian FICO from CreditScorecards.com, run by Discover
- Equifax FICO from Citi Bank
- TransUnion FICO from Bank of America
- TransUnion FICO from Discover
- TransUnion FICO from Barclays
- Equifax and Transunion Estimates from Credit Karma
Free Websites for Monitoring Your Credit Report
Many websites will help you monitor changes to your report for free. Once configured, you can expect to receive an email every time there’s a hard inquiry or a new account.
Credit Karma allows you to see the details of your Equifax and TransUnion reports. They’ve been around since 2006 and have a good reputation among free websites. We love their “score details” page that shows how well you’re for each factor. If you find errors in your report, they’ll can help you file disputes with the two bureaus. Use the mobile app to get push notifications in addition to emails. (The score should be taken with a grain of salt, since it’s just an estimate.)
Experian runs a free service for that allows individuals to monitor their reports. Credit Karma doesn’t work with Experian, so signup directly with the bureau. It’s great to get information directly from the horse’s mount, but just be ready for popups asking you to upgrade your account. Never pay them a penny. Use the mobile app to get push notifications in addition to emails.
Finally, AnnualCreditReport.com was created by federal law and is jointly operated by the three credit bureaus. Once a year, you can get a copy of all three reports. Banks sometimes make mistakes. Choose one day each a year such as January 1 to review the reports for misreported data. Or, if you’re a pro, check one report every four months, since they usually reflect roughly the same data.