Today, instead of part 3 of my 3 part Peruvian adventure series I thought I would take a step back and explain briefly a little about how I started traveling and a rough overview on how to do it affordably.
I graduated graduate school in 2011 and decided to save up with my girlfriend for a condo in downtown Washington DC. A close friend of mine had been involved in the air miles game for a few years and presented a very lucrative credit card offer to me during the spring of 2011, it was for a Chase British Airways card that came with 100,000 BA points after spending a couple thousand dollars in a few months. I was hesitant at first and had plenty of doubts and questions. I had grown up in a household that taught the value of saving and the notion that credit cards could quickly get you into trouble making it extremely easy to charge beyond your means and with good reason, millions of Americans today have thousands of dollars of credit card debt, that was something I thoroughly wanted to avoid. The flip side was the chance to travel around the world for pennies on the dollar.
My girlfriend and I both took the plunge and applied for the card and were immediately approved, it was an exhilarating feeling, and I already started to think of the places I would go with my new found wealth of points.
Unfortunately I had made a major mistake, we had both applied for this card while we were also going through the loan process for our first mortgage on the condo we had picked out in DC. Thankfully our lender was a nice enough guy and did not require any changes to the terms of our loan (ie. increased interest rate, more points, etc) but it added to the mounds of paperwork we already had to fill out and submit detailing our entire financial history and acted as a valuable lesson.
Since that time we have both applied to over 25 cards combined and amassed over 1.5 million frequent flier miles and hotel points that have allowed us to travel to Hong Kong, Bali, Peru and soon, Grenada. I currently have over a million points with my sights set on a number of trips including a return to South America next winter traveling to Brazil, Argentina and Chile. A number of my friends also partake in this "game" and have also amassed giant sums of points worth tens of thousands of dollars worth of travel around the world. Heck I even got my parents involved.
When I first tell people about my travels they always ask me how I can afford it and once I tell them about the points I've accrued they then turn to suspicion over how such a scheme could even be possible (to be fair I felt the same way starting out). It really all boils down to a few simple principles on how anyone can do this:
1. You must have excellent credit, this typically means a credit score of over 700 with each reporting agency (there are three: Experian, Equifax, and TransUnion and they all calculate your score a little differently but there should not be massive variations between all three). You can check an estimated version of two of your scores at creditkarma.com (Experian) and creditsesame.com (TransUnion). Beyond that you can get your actual scores from a number of websites that will offer it to you for a free trial of their services which you can cancel within the trial window (just make sure you actually call and cancel it!)
2. If your score is lower then this threshold I would strongly suggest getting a vanilla credit card, something simple with a low APR, likely from a credit union if possible. A revolving line of credit like a credit card will help you to build up your score over time as long as you pay your bills on time, preferably in full each month as to not incur interest charges on your purchases. Additionally be sure to pay all your other bills on time as well, ie cell phones, TV, internet as they can all negatively impact your credit score as well.
3. Once you are past at least the 700 point threshold with ALL of your scores you can begin to think about applying to some of the lucrative points cards available. There are of course, a TON of options available but they are not all created equal. I strongly suggest checking out thepointsguy.com or frugaltravelguy.com for a complete rundown of options and some more background infromation. Additionally, once you want to wade a little deeper into the game give flyertalk.com a look, its a forum site dedicated to travel, especially travel on the cheap or utilizing points. When picking cards be sure to note the minimum spending requirements and the timeframe you have in which to spend that requirement in order to recieve the bonus points. I also strongly advise signing up for all of the major airline and hotel frequent traveler programs ahead of time ( ie AA, United, US Airways, Delta, Hyatt, Hilton, Marriot) so that you will already have a member number to put on your credit card application otherwise you will be assigned one randomly.
4. As you begin to apply and get approved for cards create a google document, or excel spreadsheet to track the cards you have gotten, what bank they are with, when you applied, what the offer was that you recieved and if there are any fees associated with the card. This will allow you to be able to know when you should call card providers to cancel or transfer a particular card(more on that later), it will also ensure that you track what you have spent and what you have left to spend to recieve a particular bonus offer. I also strongly advise utilizing Mint.com to trackyour spending in general, and credit card spending in particular.
5. Another valuable tool is Awardwallet.com which allows you to track your various hotel, airline, and various other awards accounts in one handy place. Its free to use and I have found it to be invaluable.
Q: Wont this really hurt my credit score?
A: No, in some instances it may actually HELP your credit score! This is because your credit score is calculated utilizing information detailed in the chart below:
As you can see the most important factors have to do with if you pay your bills on time and how much you owe overall and on each loan (or credit card) you have issued in your name, this is known as your utilization percentage. The next biggest portion of your score is how long you have had various credit lines open, the longer you have a credit card, typically the more it will help you since it shows banks trustworthiness. Another 10% is based on the types of credit you have available, usually pay day loans wont be viewed as favorably as say a federal student loan, or a home mortgage. The last 10% is based on inquiries to your account for new lines of credit. These inqueries stay on your credit report for up to 24 months but only effect your actual score for around 12 months. If you are opening up new lines of credit your utilization will likely go down which can really help your score and offset what ever small hit(typically 2-5 points an inquiry) might occur from applying to begin with.
Q: Wont I have to pay an annual fee on most of these cards, doesnt that defeat the purpose?
A: On some cards you may have to pay an upfront annual fee and at that point you must decide if the points are worth that cost(they usually are) but by and large most companies waive the annual fee for the first year to entice new customers. If you are simply applying to the card for the signup bonus and not because you want to actually keep the card I suggest meeting the minimum spending requirements to recieve the bonus and then call to transfer or cancel the card a couple months prior to your one year anniversary. When I say transfer what I mean is that you can call many banks and have them downgrade your card to a no-fee card. This can be extremely useful to do since it allows you to hang out to the credit line that you have been issued, thus positively influencing your credit score and length of history. It can also act as a bargining chip for future instances where you may apply to a different card with that bank again and are not instantly approved. In this case you can call the bank and discuss moving credit from your now no-fee card to a new card with a new signup bonus! Not all banks will allow you to transfer a card to a no-fee card and in that case I suggest canceling or attempting to extract concessions from the bank in order for you to maintain the card(ie more points, waiving the fee for another year etc).
A few suggestions:
1. Typically limit applications for cards to one day every 3-4 months once you decide to really get into it. This will help to limit the number of hard inqueries that will go onto your credit report which will in turn affect your credit score (temporarily).
2. Typically only apply to one personal and one business card per issuing bank at a time. Usually banks will be hesitant to issue more then one personal card at a time(not always the case but a good rule of thumb).
3. Figure out a few destinations you want to travel to BEFORE applying to cards. Its good to have a goal in mind to work towards instead of blindly applying.