Flying for Free: Earning Miles and Points with Credit Cards

December 17, 2018 Flying for Free Series

By The Pointer

As we’ve discussed, credit cards offer the fastest, easiest and cheapest way to earn lots of miles and points.  How to pursue those points responsibility and effectively definitely deserves more than a couple of paragraphs so let’s talk a bit about the ins and outs.

Making sure credit cards are right for you

Before applying for credit cards, I’d recommend that you make sure the statements below are true for you:

  • You pay off your balance in full every month – Once you start paying high interest rate charges on credit card balances, you start spending more money than the miles and points are probably worth. The point of this series is to help people travel affordably so let’s keep it affordable.
  • You have a good credit score – I don’t want you signing up for new credit cards if you’re building credit, or credit card companies are unlikely to approve you for points-earning cards. While there’s no set rule for what score is sufficient, you should probably wait until your credit score is 700 or higher to start this game.  If you’re unsure of your score, check out creditkarma.com.  They’ll show you your approximated Transunion and Equifax credit scores for free.
  • You are a U.S. citizen or permanent resident – Unfortunately, the reality is that you rarely find big credit card sign-up bonuses outside of the United States, and U.S. credit cards are only available to citizens and permanent residents. That doesn’t mean others can’t get credit cards from their own country, but earning won’t be as simple or as inexpensive.

Won’t signing up for new credit cards hurt my credit score?

If you meet the criteria above, chances are that you’ll see a very short term dip of a few points in your credit score followed by strong improvement.  Let’s discuss why.

Credit scores aren’t calculated in the way that most people think.  Below is a chart showing the key factors in determining someone’s credit score. 

The most important factor is intuitive: payment history.  Clearly, creditors want to make sure you don’t have past due accounts.  Assuming you met the first requirement above, and you always pay your balance in full every month, this probably isn’t an issue for you. 

The next biggest factor is amounts owed.  That factor is measured by credit utilization rate.  Let’s say Elena spends about $1,000 per month on her one credit card with a credit limit of $5,000.  Her credit utilization rate would be 20% ($1,000 divided by $5,000).  A lower credit utilization rate is better so signing up for another credit card would actually help on this major factor.  If she signs up for the Citi American Airlines credit card that we looked at, and they give her a credit limit of $5,000 she’ll improve her credit utilization rate.  Assuming she continues to spend $1,000 (even if it’s just on one card), her new utilization rate will be 10% ($1,000 of spending divided by $10,000 of available credit).

Getting a new credit card isn’t pure upside, though.  Tied for the least important factor is “New Credit” where banks look at how often you’ve been seeking more credit.  The assumption is that if you’re seeking credit frequently then you’re a riskier customer.  After applying for a new credit card, Elena will have a new “inquiry” on her credit report, but the impact is minimal.  Her improvement on “Amounts Owed” will outweigh this effect, and her score should improve.

Not everyone’s situation is the same, but the situation above applies to many Americans with good credit.  If you’re wondering what impact applying for a new card will have on your own score, you can simulate it.  Credit Karma has a credit score simulator.  You just need to log in to your account, go to the “Resources” tab, and click on the “Credit Score Simulator” in the drop-down.

How applying for a credit card works

Applying for a credit card is pretty simple as long as you’re prepared at each step:

  • Find the best offer: If Elena wants to apply for the Citi AAdvantage Platinum Select World Elite Mastercard, I’d recommend that she go to the Best Offers section of Pointing to Dreams to check the latest offers. Like I’ve mentioned previously, websites, including my own, earn commissions when someone clicks through one of our offers, and is later approved for a credit card.  One of the ways that Pointing to Dreams is different is that I always show the best offer, even if I don’t earn a commission on it.  I frequently see other sites posting sub-optimal offers or not even making their readers aware of credit cards that don’t earn commissions.  While I want to make money, I don’t want to do it by giving advice that I wouldn’t give to a friend, and it’s why this is engrained in my site’s ethics pledge.
  • Make sure you’re comfortable with the terms: Every credit card has certain conditions to earn the bonus. For example, if Elena wants to earn 60,000 miles on her Citi AAdvantage Platinum Select World Elite Mastercard, she’ll have to spend $3,000 in her first 3 months of having the card.  There’s no annual fee in the first year, and then there’s a $99 fee if she decides to keep the card for a second year.  For Elena, the minimum spending requirement won’t be a problem.  If spending that kind of money is a stretch for you, you can check out this separate resource on ways to meeting credit card minimum spending requirements.
  • Click through to apply: When you click through the link, you’ll come to the application page. You’ll want to make sure the terms are what you were expecting.  From the screen below, Elena can confirm that yes, she’d earn 60,000 AAdvantage miles for spending $3,000 in 3 months.

  • Enter your personal information: This is where you’ll have to enter all of your personal details. There are several things beyond your name and address that almost every application asks for.  You should make sure you have this information in advance:
    • Your Social Security number
    • Your income (usually defined as whatever you expect to be paid this year so it could be a salary plus an expected bonus)
    • Your monthly rental or mortgage payment
    • Whether you have a checking account, a savings account or both
    • Your loyalty program account number – remember to create your account in advance
  • Get an immediate decision or call the reconsideration line: After you submit your application, the credit card company may give you an instant approval. If you’re approved, congratulations!  If you’re not approved or told that your application needs further review, it’s worth giving them a call.  Even a denial isn’t really final.  When calling in, I usually lead with, “I tried to apply for the ___ credit card online, but I wasn’t approved.  I just wanted to see if you needed more information that I could provide now.”  Typically the agent understands, and looks up the application with your application number or social security number.  There are several non-worrisome reasons why you may not have received an instant approval:
    • Reallocating Credit: If you already have several credit cards with one company, they may not want to extend you even more credit. Often, they’ll let you reduce the credit available on another card to make room for the new one.
    • Something about what you filled out in your application required more questioning: I used to apply for business credit cards when my businesses were very small. For example, I AirBnB-ed my apartment once, and my revenue was extremely low at the time.  They just questioned what type of business I had, and they approved me despite the low revenue because I told them I wasn’t leaving my full time job for this Air BnB business.  Remember, they just want to make sure you have the ability to pay back whatever credit they extend to you.
    • Something in your credit history required more questioning: We all have things in our past that could trigger questions, and occasionally the credit card company’s system flags them for further review. If you frequently apply for new credit cards, you’ll often get the question, “I see you’ve been applying for several new credit cards recently, why is that?”  I usually answer truthfully, but in a positive way by saying, “There’s a trip I want to take to ___, and the points from these cards will be help me do it affordably.  I can see why the question would come up, but I have an extremely strong credit history and I’ve been a reliable customer.”  Every time I’ve had this exchange, the questions stop there.  I’ve never been denied for having too many recent applications, but I also manage my applications to prevent this from happening.

Let’s congratulate, Elena!  She received an instant approval for her Citi AAdvantage Platinum Select World Elite Mastercard.  Now, Rob would go through the same process to earn points for his tickets.  We’ll talk later about how they can still book their trip as a couple.

Should I keep the card after I get the bonus?

Some cards are keepers, some aren’t, but you can always find creative ways to turn a bad card into a keeper.  Let’s look at Elena’s Citi AAdvantage Platinum Select World Elite Mastercard as an example.  After 3 months, let’s say she spent the required $3,000 to earn her bonus.  She should see the points in her account after 4-6 weeks.  After that, she’s likely to have several questions:

  • Should I cancel the card immediately after receiving the bonus? – No! There is downside for you, and it raises red flags with the credit card companies.  You’ll have a reduction is available credit, which reduces your credit utilization rate, causing your credit score to go down.  It also becomes transparently obvious to the credit company that you only signed up for the bonus with no intention of maintaining a relationship with them.  There’s nothing illegal about that, but with a pattern of this, you’ll likely have difficulty with your next application or worse.
  • Do I have to continue spending on the card after I meet the minimum spend so I can convince them I’m a valuable customer? – Some people recommend this, but I consider it a waste of good spend. I ALMOST NEVER continue spending on a card after I meet the minimum spend, and I’ve been very successful in this game.  You don’t have to go out of your way to prove your worth, just don’t go out of your way to raise a red flag (ie. cancelling the card immediately after earning the bonus).
  • Even if don’t “have to” continue spending on the card, should I? – You just have to weigh the alternatives. If Elena’s alternative to continuing to use this card is to use cash, then she’s better off using her Citi AAdvantage card and earning miles.  However, if she’s willing to sign up for a Chase Sapphire Preferred card that offers 60,000 Chase Ultimate Rewards points after $4,000 in spend, then she’s better off spending toward that bonus.  Here, her options are earning 1 AA mile per dollar (about 1.4 cents of value per dollar of spending if you use the valuations discussed earlier) or earning 16 Chase Ultimate Rewards points per dollar (60,000-point bonus divided by $4,000 plus 1 point per dollar spent) worth about 28.8 cents per dollar (16 UR points/dollar times an approximate value of 1.8 cents/point).  It’s all about the alternatives you’re willing to consider, and if you can apply for new credit cards, spending toward the bonus on a new card will almost always be the best use of your spend.
  • Won’t they “get me” with an annual fee if I don’t remember to cancel early? – No. I never cancel cards before the annual fee is charged.  When I get a statement saying the fee is due, I call and tell them I don’t use the card enough to pay the annual fee, and I’d like to close the card.  At that point, they’ll usually transfer you to a different department that specializes in these matters.  They have specialists because acquiring customers is very expensive for banks.  It’s much cheaper to retain existing customers.  There are a few ways this call could go:
    • Get a retention offer The agent may make you can offer to keep the card. For instance, they may waive or reduce the annual fee.  They may keep the fee, but offer you more bonus miles if you keep the card.  There are lot of potential offers, but it’s up to you to determine if the offer is valuable enough to keep the card.  I usually don’t wait for the agent bring this up.  When I reach them, I direct the conversation by saying, “I was transferred to you because the annual fee was charged on my ___ card, and I can’t justify paying it.  I wanted to talk to you about whether there are any retention offers available or else I’d want to close the card.”  It’s important to go straight to the offers or else they’ll stick to their script by first trying to convince you that the card is incredible and worth keeping without any special incentive.
    • Downgrade to a no annual fee card Another reason it’s important to proactively bring up retention offers is that agents tend offer downgrades before resorting to offers. On the Citi AAdvantage Platinum Select World Elite Mastercard, they may offer to convert the card into a Citi AAdvantage MilesUp card or another no-annual-fee Citi credit card like the Double Cash card.  If Elena chooses to make this conversion, the annual fee will be taken off Elena’s Citi AAdvantage Platinum Select World Elite Mastercard statement (ie. they won’t “get her” with an annual fee).  Downgrading is better than canceling because you can preserve the available credit (so your credit utilization rate won’t go down), and with no annual fee, you can increase your length of credit history at no cost.
    • Close the card The last resort is to simply close the card. I only do this if there are no good retention offers, and the bank doesn’t have a no-annual-fee card for me to downgrade to.  Even if I do close a card, I ask the bank to allocate the credit limit I had on that card to another card that I have with them.  That preserves my total available credit and keeps my credit utilization ratio low.

Even if you’d gladly pay the annual to keep your credit card, I’d suggest calling in just to see if there are any retention offers.  It doesn’t hurt to ask.

Wrapping Up

Hopefully, this information demystified the world of credit cards a little bit.  They are easily the best tool for earning lots of miles and points simply and affordably, and way too many people disregard them because of myths and misconceptions.

2 Replies to “Flying for Free: Earning Miles and Points with Credit Cards”

  1. Freebies says:

    Can I simply say what a relief to find someone who actually knows what theyre speaking about on the internet. You undoubtedly know methods to convey an issue to gentle and make it important. Extra folks need to learn this and understand this facet of the story. I cant imagine youre not more popular because you definitely have the gift.

  2. You need to be a part of a contest for one of the greatest sites online. I am going to highly recommend this site!

Leave a Reply

Your email address will not be published. Required fields are marked *