This post could alternatively be titled:
Why (Almost) Everything You Have Been Told You About Credit Cards Was Wrong!
So – for full disclosure’s sake – here are all my past and current credit cards. All are active, except the American Express Business Gold card that I canceled.
|645,000 points and miles – from sign-up bonuses alone!
I know this sounds crazy. Your thought patterns are ranging from “Why does he need 14 cards?” to “I thought opening lots of cards kills your credit score and why would I pay an annual fee?” to “This sounds like a scam” to lastly “Actually, wow, that’s a lot of points.”‘
I know this sounds foolish, but, simply, it’s not. It’s my rational attempt to fly as much as I can in First and Business Class and stay in top-tier hotels – the kinds of trips you read about in magazines or view in cinema.
Put differently, in the film Lost In Translation, Bill Murray stays at the Park Hyatt Tokyo in Shinjuku, an obscenely expensive hotel that features incredible views of the city and a pool like this:
Pretty dope, right? There’s only the slight problem of the price. A Park View King room, on a random Thursday in May 2013 goes for $592 a night, plus tax. I can’t speak for all my readers, but I don’t know anyone who has that kind of coin to spend on one hotel room for only one night.
Obviously, I can’t afford the rate. I can afford, however, to transfer 22,000 Chase Ultimate Rewards points to my (free) Hyatt Gold Passport account for each night I want to stay at the Park Hyatt Tokyo. Going back to the chart above, the signup bonuses from my Chase Freedom and Sapphire cards would give me enough for 2 nights, and I still would have some Ultimate Rewards points left over. That’s like getting almost $1200 of value for free. . . Pretty dope, right?
Now, I’d like to answer all your concerns and speak on why I have fourteen credit cards and why I can’t wait to get more.
THOUGHT 1 – “Why do I need 14 credit cards?”
The quick answer is “I don’t.” I don’t carry all 14 around with me every day and I don’t use some of them for months at a time. Some I only use once and then don’t again. It all depends on the situation and what I want to redeem my points for.
The basic premise of all my credit cards is that I am getting, at a minimum
, 1% back. Whether I want that in cash or in miles is up to me – I generally consider it a better choice to redeem as miles at a $1 to 1 mile ratio. For instance, in my previous post Songkran/ Pi Mai 2012
, I wrote that flying First Class to Thailand and Laos cost me 140,000
Chase Ultimate Rewards points. If I had redeemed those 140,000
points for cash, I would have gotten $1400
cash or over $1700
in cash to be used for travel through the Chase website. (Chase gives a 25% bonus on points redeemed as cash for travel versus straight cash back.) However, I booked my ticket a month out and the price – in economy
– was $1800 plus, meaning that I would have paid extra
out of pocket money for a coach ticket and had to sit for 18 hours in a tiny seat in the back of the plane, instead of on a seat that turned into a bed
with excellent service
, food and drink
. It was not a difficult decision on what to pick.
Taken further, the price of my roundtrip First Class ticket was over $16,000. Redeeming at 1% means I would have needed 1.6 million Chase Ultimate Reward points to buy my ticket. That’s a non-starter and would take – if was somehow able to spend $250,000 on the card a year – close to seven years to achieve.
Luckily, to achieve 140,000 miles costs less than you think. To show, I am listing below the spending bonuses (all in per dollar) on three of my cards:
Chase Sapphire Preferred – 40,000 Ultimate Rewards points after spending $3,000 in 3 months. 2x Ultimate Rewards Points on restaurants and travel. Travel includes taxi rides, airfare purchases, subway farecards – basically everything except purchasing gas. This card also offers a 7% yearly rebate on all points earned. So, one $200 airfare really earns 428 Ultimate Rewards points – (200 x 2) 1.07=428. Getting double points on restaurants is fantastic as well and one way to pick up more points is to pick up the check if your friends are paying cash. This card has a $95 annual fee, after the first year of card membership.
Citi Hilton Reserve – 2 Nights at most Hiltons in the world (including Waldorf Astoria hotels) after spending $2,500 in 4 months. 10x HHonors points on Hilton purchases, 5 HHonors points on airfare and car rental purchases and 3 HHonors points on all other purchases. I don’t stay at hotels unless it’s Thanksgiving or a family holiday, so the 10x HHonors points is somewhat useless to me. However, getting 3 HHonors points for every dollar at CVS, the gas station or a grocery store is an excellent deal to me. This card has a $95 fee for every year of card membership.
Chase Freedom – 10,000 Ultimate Rewards Points after $500 in spending. This card offers 5x Ultimate Rewards points on different categories quarterly, up to $1500 per quarter and 1% back on all other purchases. For example, from January – March 2013, you receive 5x points at gas stations, drugstores, and best of all for coffeeholics, Starbucks! You can redeem Chase UR points for cash as well, so it’s like getting 5x cash back at Starbucks for 3 months! You can even buy gas station or Starbucks gift cards – up to $1500 – and use them later in the year to continue to receive the 5x points/cash benefit. This card is free for the life of the card membership.
As you can see, usage can depend on where, when and for what I am buying. Just spending 20 seconds before heading out to round up the correct cards and pay big dividends!
I will also have another post on simple ways to boost your monthly spending at little or no cost to meet the minimum spending bonus for points-earning credit cards. Here is a link from Million Mile Secrets that will help
. For now, don’t worry much about the spending minimums.
THOUGHT 2 – “How does opening and closing cards affect my credit score and report?”
The biggest fear of playing this whole game is a righteous one – that opening many cards will destroy your credit score. Controlling your credit can mean a difference of hundreds or thousands of dollars on a car note and hundreds of thousands of dollars on a mortgage. It’s also viewed socially as a sign that you are responsible and trustworthy. Therefore, I will break down who can play and when it is appropriate.
PLEASE READ CAREFULLY – THIS IS THE SERIOUS STUFF
WHEN AND WHEN NOT TO APPLY FOR CREDIT CARDS
If you are applying for a mortgage, car note, student loan, or any other kind of large loan in the next 6-9 months, do not apply for cards. Having multiple inquiries on your credit report can discourage lenders from thinking you are a safe repayment bet. With a mortgage, for example, the difference between a 3.5% rate and one at 5%, over 30 years, can be the difference between affording the house and not. However, a positive of having one of the above loans and paying on time will increase your credit score. Additionally, having a mortgage, car note or other loan does not disqualify you from applying for new credit cards.
If you do not
have a credit score above 730 on the Fico scale and a credit history of less than two years, don’t play
. FICO is an acronym for Fair Isaac Corporation and they basically invented the credit score. (You can sign up for a free-trial and get your credit score from them here
. Remember to call and cancel the free trial so you don’t get charged after the trial period is over!)
Their scale ranges from 300-850 and is a way for lenders to measure credit risk. A higher score is a better score. Experian, one of the three main credit bureaus, suggests
anything over 700 is good. (The other two bureaus are Equifax and TransUnion.) MSN Money says
that while previously anything over 720 would get you the lowest mortgage, today the requirement is 740 and above. I’m going to cut that down the middle and average the two from MSN. In fact, here’ s a picture of my credit from my last credit score check from Credit Secure on January 18, 2013 (they also have a 30-day trial
|My score is in the “EXCELLENT” range
P.S. As you can view above, my score with Experian is different from my Equifax score. The score depends on factors like the preference of the bank in choosing a bureau or even the state where you live as the inquiry when you apply for a credit card will go to certain credit bureau(s) over others. I live in New York and pretty consistently Experian and, to a lesser extent, Equifax are the credit bureaus used. Barclaycard is my only pull on Transunion, which is the 3rd main credit bureau. I do not know what my FICO score is at the moment, because I do not have a membership with them, although I assume it closely parallels the above picture, as otherwise I would not be approved for new cards. I also am not getting any major loans in the next 6-9 months, so I’m not worried about the number of inquiries I have on my credit report.
P.P.S. I am sure you have seen the FreeCreditReport.com commerical with the awful singing and jangly hook. Guess what? Their product is actually not free. The federal government, however, mandates that 3x a year, each citizen gets a free look at their credit report. The score you still have to pay for, but if you go to www.annualcreditreport.com, you are entitled to get 3 reports now – 1 per each bureau. You can also space them out and view every 4 months, which is what I like to do. Go to this site – it’s free and safe!
P.P.P.S. If your credit score is 800 or above, rejoice you chosen few! You are extraordinarily wise when it comes to monetary matters and your attitudes toward credit will serve you excellently well into the future. However, there is no difference in the mortgage interest rate for someone with a score of 820 versus a score of 780 or even 760. Even having a perfect score of 850, which I think is impossible unless you have over 100 mortgages, car notes and credit accounts with a perfect fifty year history of never being late, will not help you get a better interest rate than someone who has an excellent score fifty points lower. Basically, if you feel comfortable at 760, but your score is 800, you have forty points to play with. Keep reading!
APPLYING FOR NEW CARDS and AN EXPLANATION OF YOUR CREDIT SCORE
Generally, one application for a new credit card will cost between 2-5 points on your credit score. However, over time, this “penalty” for opening a new card goes down, and after one year, stops affecting your credit score. After two years, the inquiry, or “hit”, drops away completely. This is true whether you cancel or keep the card. The length of your credit history is only
15% of your credit score per the FICO website
(I am somewhat writing this for a person with a two to three year credit history, but if you have a decade or longer of credit, than this hit will matter even less). I am posting the graph from MyFICO, below.
Types of credit refers to if you have only credit cards or a student loan, or whether you have credit cards, store charge cards (like Macy’s), a car note, a mortgage, student loans – basically multiple types of credit. More types is better, but I only have credit cards on my credit report and it doesn’t seem to be hurting me at all.
New credit is just that – a measure of how many new accounts you have opened and inquiries on your credit report. I wait 90-91 days between applying for cards. This time period has been gleaned from multiple credit card blogs and forums that I frequent and it has served me well. Three months seems to be the point at which banks stop caring about recent inquiries.
Most importantly, the two biggest factors are represented by payment history and amounts owed – combining for over 65% of your score, while everything else is either 10 or 15%.
is another way of asking the question of “Do you pay on time, and if not, how long do you take to repay?” It is absolutely essential
to pay on time – a late score, whether 30, 60 or 90 days, or even longer – will stay on your score for up to 7 years
, which is a giant red flag for other banks. However, it’s crucial to note that if you are mistakenly late once, you can often call up the bank and plead ignorance/forgiveness. If you have a history of on-time payments, they will most likely forgive the late payment and will not report it to the credit bureau. This happened to me once when I was younger and dumber. Feel free to also escalate the matter if you don’t think you are getting the response you want. (It is very important to not only pay on-time, but in full every single month. The interest rates on some cards can approach 25-30%, which completely destroys the miles / points earned by spend. For example, paying $300 interest each month for three months means that “free” ticket you booked on points really costs $900. You want to avoid that.)
The purple portion of the graph, or amounts owed
, represents how much of your total credit you are using, or “credit utilization.
” This part of your score can be drastically changed for the better by applying for more cards, which gives you more credit. For example, pretend you have one
card with a $1000 limit and you want to buy a new refrigerator
because the old one conked out. However, the fridge costs $800. Obviously, you can buy put it on your one
credit card because 800 < 1000. However, to the bank whose credit card you are using, it looks like you are using 80% of your credit limit, which is a big red flag. They assume that you are “maxing out” your available credit and your credit score will dip
(scroll down to “Amounts Owed Tips”) because of it. (Please ignore the last bit of advice in the “Amounts Owed Tips” portion. If that was true, I wouldn’t be writing this blog and would have only one or two credit cards.)
Now, pretend that you have two or even three
credit cards, each with limits of $1000. The fridge still costs the same – $800. However, your credit limit is now $3000, which means your use of available credit is around 27%, which is near the optimum limit of 1/3 of your available credit. For proof, here is a screencap from Motley Fool
, an investment site.
I am not sure of how much credit I have exactly, but it’s over $50,000. Seven percent of that number is $3500 – which is an amount I am most certainly not spending every month. Seven percent of $10,000 is $700 – which is still a pretty big amount too. To sum up, don’t worry much about this part of your card once you get 2 or 3 cards, or have one card with a large limit – the credit limits will take their of themselves.
Closing cards is also an important part of the game, as you cannot apply for the same card and get that same signup bonus over and over. Closing cards is only for cards that have an annual fee – cards that are free you should keep forever to age your account history. Cards with annual fees can also have benefits that outweigh or mitigate the annual fee, like the Chase Sapphire Preferred, which has a 7% bonus on points earned in a year. It is up to you, the customer, on whether these benefits are worth the fee. You can also call up the credit card issuer and ask for an “adjustment,” a.k.a. points, or a statement credit to lessen the financial pain of the annual fee. Factors could include the amount of spend on the card, the availability of a better card elsewhere and that you don’t want to pay the annual fee – anything you feel is legitimate, is. It’s your card and your money.
The impact of closing cards can be found in this link
, which is an interview with a MyFICO Product Support Manager. Some highlights are below:
1. Even a canceled card stays on your credit report for up to ten years – this helps your average account age.
2. There is no difference on your credit score if you cancel the card or if the issuer does.
3. There is no such thing as “too much credit.”
4. One tip from me – if calling to cancel a card, ask to put the credit from that card on a different card from the same issuer. Not doing so reduces your total amount of credit and, therefore, your credit score. Do not close the card if one customer service representative says no. Hang up and try again!
In my experience, I have called to cancel two cards – my American Express Business Gold and my Chase British Airways. The AmEx I couldn’t get any type of credit towards the $175 annual fee – which is typical for a business card – so I cancelled it, as there were no useful benefits to me that were greater than $175. I canceled the card in the eleventh month of card membership. The Chase British Airways card I ended up not canceling (yet!) for the sum of 5,000 Avios (British Airways’ term for their mileage currency). I will probably call to cancel again before the year is up, as I have had that card for 10 months. Maybe I can get a better offer then. . .
THOUGHT 3 – “This sounds like a scam!”
A STORY ABOUT A FRIEND
I understand that is quite a lot in information to comprehend. However, the amount of information is the key to why this game exists – people don’t want to invest their time or energy into finding out how this game works, so banks are fine with a small percentage of the overall consumer pie reaping outsize rewards.
For instance, I have one really good friend – I will call him N – who I have tried to get to play, but he continues to refuse. My goal is to get him and other friends to play so we can see the world together – solo traveling doesn’t interest me much. (Some of my friends have said yes and you can read about them here.
However, my friend always says something to the effect of “If it worked, then everyone would do it,” or “This sounds illegal.” He still is saying this even after I flew to Thailand in First Class for $100 in taxes and fees and was not arrested or prosecuted. (My friend is extremely cautious.)
My friend even saw the pictures I put up on Facebook, but he still doesn’t care to apply for cards, even though he has excellent credit and manages his money wisely. He has also seen that mutual friends of ours have started to play by applying for new credit cards due to my advice, but still – no dice. All I can hope is that one day I will have worn him completely down. . .
As I mentioned before, your credit is an asset – an extremely valuable one – and mistakes or bad credit practice can really screw up your finances. However, what I like best about this game is that it monetizes your asset in an ingenious way and at the same time encourages you to keep better track of your spending, so it’s like a double dollar rainbow!
CARDS WITH ANNUAL FEES – An Explanation
People are also distrusting of cards with annual fees – I speak from experience. My dad, who has since come around, always told me never get a card with an annual fee. In theory, this makes sense – why would you pay a bank for the “privilege” of spending YOUR money?! Shouldn’t it be the other way around?
Reality is a very different case. For example, the Chase Sapphire Preferred card which I can’t stop mentioning gives you a sign-up bonus of 40,000 Ultimate Rewards Points which you can redeem for $400 cash. This card has a $95 yearly fee, after the free first year. In other words – CHASE IS GIVING YOU $400 FOR FREE! I can’t stress that enough – this is free money. Even if you had the Sapphire Preferred for 4 years, you still would come out ahead $15! That’s without counting any spending bonuses. Given that sum, experienced players comfortable with “churning cards,” or getting 3-4 cards every 91 days, can easily rack up $3000-$4000 cash in a year for doing nothing out of the ordinary. The money is also untaxable, since it’s a rebate on your spending, not additional income!!!
I’d like you to re-read that last paragraph. Untaxable, free money and potentially a lot of it. Keep reading!
GO AT YOUR OWN SPEED
To end the informational part of this post and to transition into the fun part – i.e. planning a monster vacation – I’d like to point out I have shown most of my credit information to you – my cards, my score, my practices (I can’t give you my credit card numbers, sorry). While I’d like to monetize this blog somehow eventually, right now I am giving the above information for free – information that has allowed me to accumulate a free trip and hundreds of thousands of points and can do the same for you.
The best part of this game is that you can dip your toes in as slowly as you would like to. You can apply for 1 card a year, 1 card a quarter or 3 cards a quarter – it doesn’t matter! Each card application will impact a credit score differently. Each card has benefits that can mean more or less to a particular applicant. Each applicant has different goals in mind – be them miles/points or cashback. You are in total control of your credit and don’t let anyone tell you differently.
|My current cards (minus the Chase United Card which I can’t find)
I can’t make you do anything you don’t want do with this website. I can only assume that everyone who has read up to here would like fly first class at least once in their life and stay at a hotel suite in the middle of a foreign city with a horizon view and impeccable service. I have and I can tell you it’s awesome
. It’s beyond awesome. I have a previous post on the credit card industry
in general and why the bonuses are so lucrative.
So, let me restate once more – This is not a scam in any way – it is an opportunity to do what you have read in books and seen in films.
THOUGHT 4 – “Actually, wow, that’s a lot of points!”
WHAT IS POSSIBLE?
As mentioned before, I have gotten at least 645,000 miles and points from credit card signup bonuses. Combining total spending and other bonuses, I’m somewhere in the region of 800,000 – 900,000 lifetime miles and points. That’s not really a whole heckuva lot – lots of people who play have points balances in the 2-3 million range.
(QUICK POINT – I use an online tool called Awardwallet (website here
) to maintain track of my points and account numbers. It’s free for the upgraded version for 6 months or so and I have 10 coupon codes left if you want to email me WindowSuite
or tweet me at @Windowsuite
. The downgraded version is still very useful and free as well.)
Of course, some people go for the outer limits of miles and points legality. Here is an article
on one savant who hired disabled rice paddy farmers to fly cheap flights between Thai islands, which brought the FBI’s attention because the islands were in the Golden Triangle – a noted worldwide point for heroin production and distribution! (Spoiler – Brokedown Palace it was not.)
Obviously, that’s silly and takes up too much time. It’s much easier to just apply for cards for that blowout vacation of four days in Paris and than five days in Thailand, for instance
One vacation – in Europe AND Asia?
Maybe you want to fly from the East Coast to Europe, but also would like to visit Hawaii at some point. No problem – you can tack on an additional one way to Hawaii for a small mileage payment with United – no cash required!! You only have to buy the ticket from Hawaii back to the East Coast. It’s like getting 1.5 vacations for free! MileValue – a fantastic resource – explains it here
There are all kinds of crazy routing rules. For instance, USAirways only costs 90,000 miles to fly business class to Asia and 100,000 miles to fly to Europe. However, you can route your trip to Asia through Europe, effectively getting to visit both places for the Asia price, no the European price – which saves you 10,000 miles!
Another purveyor of fantastic routing rules is United Airlines, which allows 1 open jaw and 1 stopover on award tickets. I explain both below.
A stopover is any amount of time over 24 hours at a city that is not the final destination on the trip. For example, flying New York to Paris to Tokyo and spending four days in Paris would make Paris the stopover city, as Tokyo is the final destination. You can make the stopover city part of the trip last for months, if you want – the only problem is finding an available award flight to fly you out of your stopover city at the later date.
Here’s the above paragraph linearly with a sample itinerary and airport codes in parentheses:
New York (EWR) >>>>> Paris (CDG) – Leaving EWR 6:20 PM and Arriving CDG at 7:06 am (Flight time of 7h46 and a 6 hour time difference (via Travelmath)
Stay in Paris for four days – gorge on pastries, the Old Masters, and champagne.
|View of Paris from Le Tour Montparnasse
Paris (CDG) >>>>> Tokyo (NRT) Leaving CDG at 8pm and arriving NRT at 6:36pm (flight time 12h36 and an 8 hour time difference)
Spend a week in Japan – Tokyo for 5 days, sleeping at the Park Hyatt Tokyo
or Grand Hyatt Tokyo
(for free with transferred Chase Ultimate Rewards Points into your Hyatt Gold Passport account). Take the shinkasen (
bullet train) to Himeji for a couple days and view the White Heron Castle.
|One of the first UNESCO sites in Japan
RECAP: Four days in Paris and seven days in Japan >> Two vacations in one for the exact same price!
An open jaw example is flying from New York to Paris and than flying Frankfurt to Thailand.
In other words, you are flying into one city – Paris – and out of a different one – Frankfurt. In my Songkran/Pi Mai trip report
, I had my stopover in Bangkok, where I stayed for two days befor continuing onto my final destination of Vientiane, Laos. Due to time constraints, I was not able to use my open jaw as I had wanted, which was to fly to Bangkok then use my open jaw to fly to Hong Kong and spend two days there. I would have had to buy a (cheap) ticket from Hong Kong back to Bangkok, where I could still use my stopover privilege. It’s basically a free one way flight on top of your regular award. I could also have spent up to 23 hours in Zurich, where I connected from my New York flight to my flight to Bangkok. Remember, anything under 24 hours is not considered a stopover.
Here is what my itinerary could have looked like:
New York (EWR) >>>>> Zurich (ZRH) 23 hours in Zurich (take the rail link from the airport into town and look at all the watches I can’t buy while eating all the chocolate I can) >>>>> Bangkok (BKK) >>>>> Hong Kong (open jaw). Spend two days in Hong Kong >>>>> Buy my own ticket – probably on Air Asia from HKG – BKK >>>>> Two day Stopover in BKK on original ticket >>>>> Vientiane (VTE) (destination)
(Flight back to New York (EWR) could be constructed any number of ways, but mine was VTE >> BKK >> Tokyo (NRT) >> Chicago (ORD) (11 hours betwen flights to see a friend) >> EWR
So, yes, it is possible to circumnavigate the globe without dying in the Dutch East Indies like Magellan.
RECAP: 23 hours in Zurich, two days in Hong Kong, two days in Bangkok, 8 days in Laos and eleven hours in Chicago. This is not only possible but easy!
(Quick point – I picked Europe and Asia because that’s what I did. You can also, for example, fly roundtrip US-South America-Africa or USA-Europe-Middle East or USA-Middle East-Indian Subcontinent.)
SAMPLE IDEA: RANDOM TRIP
Now that you have read the master post, go do some research on what card suits you best and what you feel most comfortable with. I can offer all kinds of advice on the cards I have, as well as cards I don’t have but plan on getting in the near future.
Please be responsible with your use of credit and I am not liable for penalties you may incur (sorry).
With that said, the world is yours, so start dreaming and planning!