USA Finance

Jun 11 2017

Use travel credit cards to earn free flights without wrecking your credit score #where #do


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Use travel credit cards to earn free flights without wrecking your credit score

Some people never pay for airfare. Frequent business flyers, for instance, may log enough miles to earn free flights for pleasure travel. Others take advantage of every 50,000-point credit-card sign-up offer that comes their way and then close those accounts quickly.

But that credit-card-churn approach can have a negative impact on your credit score, especially if you have little credit history. That’s because opening new cards lowers the average age of all your credit accounts. Fifteen percent of your credit score is determined by the average time these accounts have been open.

And each time you apply for a card you’re adding a hard credit inquiry to your credit reports. That credit inquiry will remain on your record for 24 months and could affect your score for the first 12. According to Fair Isaac, creator of the widely used FICO credit-scoring system, the average inquiry lowers your score by only 5 points, or fewer. However, if you have little credit history, opening a card will be more of a negative, and if you open many credit card accounts, those point deductions can add up.

For information on how to choose a travel card, read our report on the best travel credit cards. And before you book a flight, check our airline reviews .

Losing a few points off your credit score might seem like a fair trade off in the pursuit of a free flight to Bora Bora, but when you want an auto loan or a mortgage you’ll wish you didn’t open all of those card accounts, says John Ulzheimer, who worked at Fair Isaac and is now president of consumer education at SmartCredit.com. And closing them doesn’t unring the bell. It doesn’t erase the inquiries and the shortened age of your credit history will remain on your record for years, according to Ulzheimer.

Still, there are smart ways to use cards to earn air miles that sidestep the drawbacks. Brian Kelly, publisher of ThePointsGuy.com. a website for travel-points advice, says he’s accrued millions of points using credit cards. He does it by applying for two to four cards on a single day, twice a year. But, unlike churners, he doesn’t close them unless they no longer serve a purpose. (Kelly admits his approach is wise only if you start with good credit and don’t intend to go for a mortgage soon.) He applies on a single day because there’s usually a day lag before card issuers know you’re applying for credit elsewhere.

Kelly currently holds about 20 credit cards. Contrary to popular belief, having a lot of credit cards is not detrimental to your score. That’s because one component of the scoring formula is the amount of credit you use relative to your limit. (According to Fair Isaac, the people with the highest score in the nation, 785 or higher, use only 7 percent of their available credit.) In fact, having several cards provides a cushion. The more available credit you have relative to the amount you charge each month, the higher your score is likely to be. Ulzheimer, for instance, has 14 open cards with $200,000 in available credit–and a credit score of 809.

If you’re keen to open a new travel card, try these guidelines to maximize your points and minimize the credit risk:

Make sure you have good credit. That includes a lengthy credit history. If your credit history includes only one other account and you open a new one, the length of your average credit history will be halved and your score will probably drop. To keep good credit, set up auto bill pay. One missed payment could stay on your record for years.

Wait for the right offer. Log on to social media, and look at blogs and sites such as thepointsguy.com and frequentflier.com to find cards that match your spending and flying patterns. Watching the blogs is important, because the best point deals close quickly. For instance, in May, thepointsguy.com posted a link to an unadvertised card offer for 75,000 American Express points that lasted just 24 hours. But also check your snail mail. Amex sends its most lucrative 100,000-point offers through direct mail with invitation codes only the recipient can use.

Consider business credit cards. Travel and airline credit cards typically have both consumer and business versions. You can sign up for both, take advantage of both introductory bonus point offers, and combine those bonus points on a single frequent flyer account. You don’t need to run a formal business or have a Tax ID. You can apply with your Social Security number.

Watch for annual fees. Travel cards often carry annual fees, though many waive them in the first year. Some come with perks (free checked baggage, credits toward airline fees, priority boarding) that might make that fee tolerable. But, if you won’t use those perks, closing the card may be the right action. Provided you’ve obtained other credit accounts over the years, closing one card shouldn’t have a big impact unless it represents a significant portion of your available credit. Closed accounts stay on your file for 10 years, so cards will still be factored into your score after you ditch them.

Pay off your balance every month. If you carry a balance, travel cards (which typically have high APRs) aren’t for you.


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