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 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.
- 1 Benefits of travel and reward credit cards
- 2 Is it crazy to apply for new credit cards, just for the travel benefits?
- 3 Getting a bunch of new credit cards isn’t for everyone
- 4 Phase 1: Putting together the credit card collection that works for you
- 5 Phase 2: Getting credit cards just for their sign-up bonuses
- 6 Phase 3: Optimize the points you earn for spending
- 7 The Chase 5/24 rule
- 8 How to manage your credit card collection
- 9 (Almost) never use cash—earn rewards from your credit cards instead
- 10 Additional tips
Benefits of travel and reward credit cards
1. Earn rewards for all your spending
Unless you travel frequently, it can be hard to build up enough reward points to earn free airplane tickets and hotel nights. However, even infrequent travelers can earn lots of points by simply using a rewards credit card for their spending.
Every dollar of your normal spending. that you put on a good reward credit card, takes you one step closer to free travel. Once you’ve taken the time to choose the best possible reward card (with our help), this strategy doesn’t take any additional effort. Just start using your card, whenever you can, and the rewards will start piling up.
2. Get valuable travel benefits, simply by having the right cards
Frequent travelers get access to a variety of valuable benefits and perks, such as free checked bags, access to airport lounges, and complimentary hotel breakfasts. But, even if you don't travel very frequently, or you spread your travel across different airlines and hotel chains, you can get many of the same benefits just by having the right credit card.
Most travel-related credit cards give valuable travel benefits to their cardholders. For example, most airline credit cards will give you free checked bags and priority boarding; and many hotel credit cards will give you free breakfast, complimentary room upgrades, access to the hotel club or lounge, and/or late checkout. “Premium” credit cards provide benefits like access to airport lounges, or the 4th night free on any hotel reservation. Over time, you can build up a core collection of travel credit cards, that provide a set of valuable benefits, that you can take advantage of on every trip you take.
3. Earn hundreds of thousands of points via credit card sign-up bonuses
Earning points from your credit card spending takes almost no effort, but it can take some time to build up large quantities of points. The faster way to accumulate really large quantities of reward points, is not through everyday spending—it is through credit card sign-up bonuses. Every time you sign up for a rewards credit card, and meet the initial spending requirements, the credit card company will give you a valuable sign-up bonus.
Just by signing up for a single credit card, it is common to get enough points for a free airplane ticket to Europe, two round trips in the United States, two to three nights at a high-end hotel, or ten nights at a less expensive hotel. The best way to earn a lot of free travel is to gradually sign up for many different credit cards as you can, even if it is just to collect their sign-up bonuses. Most people can easily acquire over a million travel reward points in this way.
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 or 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 is not unusual to have your score go up 50-100 points, after getting several new cards.
- 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 sign-up 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 sign-up 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 sign-up 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.
That is because of the way credit scores are determined. 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.
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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, and collect dozens of sign-up bonuses. You just need to religiously pay off every card each month, have a decent 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 sign-up bonuses for years; and you probably should too.
Getting a bunch of 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 balance each month. If you don’t, you'll wind up paying fees and interest, that 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. Go super slowly, monitor your credit score, and wait till after you get the loan, to go crazy with lots of cards. Signing Up for Travel and Reward Credit Cards Won't Kill Your Credit Rating.
- 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 most 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 decent scores. If you’re 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 so 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 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.
Phase 1: Putting together the credit card collection that works for you
Build up a core collection of credit cards that provide a worthwhile set of benefits and/or earn the best rate of rewards for your spending.
For example, someone living in Seattle might put together a core credit card collection that includes the Freedom Unlimited Card to use for most of their spending; the Sapphire Reserve Card for airport lounge access, even better rewards on travel and restaurant spending, and primary rental car insurance; the IHG Credit Card for a free hotel night certificate each year; and the Alaska Airlines Credit Card for free checked bags on Alaska and an annual companion certificate.
You want to focus on the cards that will give you the most value, based on the ways that you travel and spend your money.
Phase 2: Getting credit cards just for their sign-up bonuses
While building up your core collection of credit cards, you will have the opportunity to earn lucrative sign-up bonuses, every time you sign up for a new card—and will be well on your way towards the world of free travel. However, you don’t need to stop there.
Once your are finished getting the your most important cards, you can continue signing up for new credit cards, just so you can earn additional valuable sign-up bonuses.
For most people, sign-up bonuses are the only realistic path to free travel, which doesn’t require them to wait for years for their points to add up through paid flights and stays and/or credit card spending.
Signing up for cards, just to earn their sign-up bonuses, is easy. Sign up for a new card that has the most valuable sign-up bonus. Until you’ve met the initial spending requirement, use only that card for all your spending. Collect your bonus. And then move on to the next card on the list. Unless the card has additional benefits that justify the annual fee, cancel it before the end of the first year, so you don’t have to pay any additional fees.
With this approach, you can easily build up hundreds of thousands of points (and multiple free hotel night certificates).
Phase 3: Optimize the points you earn for spending
Once you have started running out of attractive sign-up bonus opportunities, or want to stop continuously signing up for new cards, you may choose to get a few final cards, to further optimize the rewards you receive for your ongoing spending.
Many cards offer bonus rewards when you make 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.
For many people, this phase is not worth the extra effort. They don’t want to worry about remembering to use the right card for each type of purchase. Other people wouldn’t dream of missing out on the extra points. Whatever you do, make sure not to pressure other family members to follow suit.
If you decide to take this approach, we recommend building up your core credit card collection and earning the most valuable sign-up bonuses first. Applying for these other cards is generally more valuable. And, if you are working to meet the initial spending requirements on a bunch of new cards, there will be fewer opportunities to take advantage of bonus category rewards.
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 leading credit card companies, and along with American Express, offers many of the best travel and reward credit cards.
Unfortunately, you can't get approved for most Chase credit cards, if you have 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 about to sign-up 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. to take advantage of their sign-up bonuses. Chase has some of the most valuable sign-up offers available, and you are unlikely to be able to come back, and get them later. Dealing with the Chase 5/24 Rule.
How to manage 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 sometimes getting rid of your credit cards. You can use whatever plan works for you, or follow our step-by-step guides.
(Almost) never use cash—earn rewards from your credit cards instead
Your goal is to collect as many miles or points (or as much cash back) as you can. That means that you should use your rewards credit card whenever possible, rather than paying with cash, a debit card, or a check. Start putting everything on your card, and your rewards will build up quickly.
- Every time you use cash, a check, or your bank card (when you could have used your credit card), you are losing out on points you could have had. Each individual transaction may not seem like much, but it adds up over time.
- Using a credit card, instead of cash, has some other benefits as well. You’ll have better records of your spending, build up your credit history, and make fewer trips to the ATM (paying less in ATM fees). In addition, your credit card will often give you some protection if something you buy breaks, is stolen, or even drops in price.
- While we strongly recommend putting as much of your spending as possible on a good reward card credit, you don’t have to take it to an extreme. If you are making a small purchase, and paying cash will speed up the process for everyone, don’t worry about a few cents worth of points. If you are under the store’s minimum for taking credit cards, don’t make a fuss, just pay with cash. And you usually don’t want to use your credit card with any business that charges an extra fee to use a card.
- Many of the bills that you pay each month can be paid with a credit card, rather than with a check or automatic bank withdrawal. For example, pretty much every wireless and cable company accepts credit card payments, as do many utilities, insurance companies, and gyms. Go back over a few months of bank statements, and see who you are paying on a regular basis. Then see which of these companies, you can switch over to credit card payments. You'll probably be surprised, at how much more credit card spending you can generate, without changing the total amount of money you are spending each year.
- 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 sign-up 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 sign-up bonus. You Can 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.