Playing the Points Game

There are numerous techniques to help make travel more affordable.  However, there always seemed to be one constant expense.  Airline tickets are expensive and there are not many ways to significantly lower the cost.

After years of being a skeptic, I finally discovered there is one very effective way to lower or eliminate airline cost.  While I feel a little dirty promoting the scheme, it is too good not to tell others about.  So before I tell you the details, you must promise to read and follow all the steps in the article.  While the basics are not terribly complicated, overlooking the details can quickly turn this from profitable to costly.

KNOWING WHERE YOU STAND

 

The first thing you need to know before getting into the credit card points game is your credit score.  To do this, sign up at CreditKarma.com and you’ll get access to your TransUnion and FICO scores.  Once you know your credit score you will have a better idea of which card to apply for, or if you should apply for any.  If your score is below 700, it would be best to focus on increasing it before applying for any more credit.  If you have a good score, searching for specific cards on sites like CreditCards.com can help you to find the general score requirements needed to be accepted.  Be aware that each credit card application you submit will result in a “hard inquiry”.  Each “hard inquiry” will temporarily cause your score to drop around 5 points.  So, if you don’t have a good chance at being accepted for a card, do not apply.

You should only consider opening a card if you are already in good financial health.  A proper emergency fund is an absolute necessity.  This process does require a reasonable amount of spending flexibility.  Being able to shift future expenses to the present day may be required in order to cover yearly fees or meet spending requirements.  Anyone living paycheck to paycheck should first work to build up their savings and only then consider these tactics.

CHOOSING A CARD

 

If you have determined you are in a good position to open a new card, it is important to make sure to select the appropriate one.  Most cards offer either airline miles, hotel points or cash back.  The best cards offer points that can be used interchangeably for any of these purposes.  It is important to know which airline or hotel company you plan to use for your upcoming trip.  It is best to join the particular points program (it is free) before opening the card. For times when you are not sure how the points will be used transferable points are very valuable.  These point systems allow you to transfer points to partners at varying ratios.  For example, Chase Ultimate Rewards Points could be transfered to United Airlines or Southwest for a flight or to IHG or Marriott for a hotel stay.

It is also important to pay attention to the sign up bonus and points earning structure.  While earning 2x or 3x points on certain daily spending categories is important, large sign up bonuses are essential to building a large points portfolio.  For example, with a 1x card, you will have to spend $50,000 to gain the same amount of points provided by a single 50,000 point sign up bonus.

MEETING THE SPENDING REQUIREMENT

 

This part is fairly straightforward, but there are a few things to be aware of.  First, I’ll point out that you should have a good size emergency fund to Sign up bonuses work a few different ways.  Some bonuses are applied automatically when you are accepted for the card.  Others apply upon making your first purchase with the card.  However, most cards with large sign up bonuses will require you to charge a certain amount to the card within the first 90 days.  It is important to realize that this 90 days starts when you are accepted for the card and not when you receive it.  Generally, the spending requirement will be around $3,000 but can be of any amount.  If you are not confident that you will be able to reach the required spending requirement, you should not apply for the card.  I try to plan card opening around times when I know I’ll have unusually high spending.  While you could stock up on products you would use in the future anyway, never purchase items for the sole purpose of meeting a spending requirement.  If you do this, you will not come out ahead.

As you are making purchases to the card, be aware of the balance and make sure you have adequate funds available to pay it.  When a payment is due, you should always pay the balance in full.  Making a partial payment is not an option.  Carrying a balance on the card is the very reason banks are able to offer these sign up bonuses.  If you are carrying a balance, you will lose money.  Do not open the credit card if you cannot pay it off in full each month.

CLOSING THE DEAL

 

Now that you have gotten your points, you need to have an end game.  Before you can consider taking any additional steps, you will need to have used the points.  Realize that if you take any of the following steps, you are likely to forfeit whatever points that are remaining.  If the card does not have an annual fee, the best thing to do for your credit is simply to keep the card open.  Do this whether you intend to keep using the card or not as closing the card will negatively impact your credit score.  This is because your ratio of credit used vs credit avaliable is one part of the credit score formula.  Interestingly, this is why opening credit cards can actually help your score in the long run but I digress.

So, what if the card has an annual fee that you do not want to continue to pay?  If this is the case, you have a couple of options.  The best thing to do is to call the card issuer and have them carry out a product change to a no fee card.  For example, if you are hoping to get rid of a Chase Sapphire Reserve ($450 annual fee), you could call and request a product change to a Chase Freedom (no annual fee).  This way the credit line continues uninterrupted and the credit agency is never notified of a closed card.  Occasionally, a product change may not be possible.  This leaves only one other choice; to close the card.  Closing a card is not ideal as it negatively effects your credit.  Doing this periodically will not have an overwhelming effect but avoid it if possible.

WHAT IS THE POINT

 

So, why bother with all this?  While this guide is rather long, the process is quite simple.  Much of what I have written here is more financial education and how to avoid potential pitfalls than anything else.  The process really involves just a few things: open a card, meet the spending requirement, pay off the statement balance in full each month, use the points, request a product change.  Not all that difficult, right?  All you need to do is be able to track your spending and set up some calendar reminders.  In the end, you will only spend a few hours completing the process.  I don’t recommend even opening a card if you will not provide you at least $500 of value.  That offers a great return on my time to me.  I have been doing this several years and my credit score has not fluctuated more than 15 points.  I even refinanced my house at one point and was able to get the best rate available.  Done correctly and carefully, there really is not a downside.

Taken to extremes, people have used this strategy to take $20,000+ trips for next to nothing.  For the average American taking a single vacation a year, a card could easily cover a majority of your cost and allow you to travel to places previously out of your budget.  Whether you are a luxury traveler or budget backpacker, getting into the points game can help you to make your dream trip a reality.