As I’ve stated numerous times throughout the years, credit card sign up bonuses provide me with the largest amount of free travel of all the techniques I use. But we are dealing with a loaded gun that many individuals can’t seem to handle.
Using credit cards for free travel, or any other reason, requires discipline and the ability to pay off your monthly balance IN FULL at the end of every billing cycle. Interest rates on credit cards are HUGE, late fees MASSSIVE and have got more Americans in credit trouble than any other credit instrument. This free travel technique is not for everyone. You know yourself better than anyone.
- Can you manage your money?
- Do you have a budget?
- Do you live within your budget?
- Or are you easily distracted and make impulse purchases?
- Is your source of income and repayment dependable and reoccurring?
- Or are you just getting by on part time work?
This decision cannot be taken lightly and one mistake, one late payment will haunt you for years. Tread lightly; be honest with yourself and ultimately your creditors.
Which travel credit card should I apply for first? That depends on the credit score you have established based on your limited history with a retail charge card and small installment loan. You need to know that score number and are looking for these target minimums:
700+ on a FICO scale or 800+ on a VantageScore Scale.
These are the scores we strive for long term. It may be still too early for you to have this high of a score, and if so, you’ll be first applying for a less than premium credit card. Don’t worry; your time will come if you pay on time. You will find free trial offers to see your credit scores on the right hand blog column. You must remember to cancel within the free trial, after you get your report and scores, or you will be charged monthly. I use Truecredit.com to monitor my credit and pay for it every month. To me, it is a worthwhile expense.
If your scores are less than the target range, but over 650 on an FICO scale and 725 on a VantageScore scale, consider applying for a credit card that does not require a premium score, but charges higher interest and fees. Remember you are paying off the card IN FULL every month or borrowing just a small amount to establish a credit trade line. Your interest expense will be minimal while you establish this trade line. These cards when offered by the airline’ websites typically offer you 1 mile for every $2 spent on the card. That is your indication that you are looking at the right credit card for your less than “good” credit score. Premium cards pay at least 1 mile per $1 spent. Stay away from those unless you have a premium credit score. You will within 6 months, if you pay as agreed.
If your new credit file shows scores lower than the 650 or 725 ranges, check your credit report for accuracy. There may be an error on the report, a medical collection that somehow you missed or the trade lines you have established are not reporting to the three major agencies. In event of errors get them corrected right away. A collection is bad, real bad and needs to be cleared right now.
With lower credit scores I suggest talking to your bank about a secured credit card. Not all banks will offer them, but when you find one that does, here is how they work. You deposit money in an account with the bank and they in turn give you a credit card with a credit limit equal to or slightly smaller than the amount of your initial deposit. Does it sound like the CD loan? It is. You are pledging your own money as collateral and a pledge that you will make your payments on time. If you don’t, the bank will close your credit card and collect from your prepaid deposit. There may be a sign up fee for this type of credit card and this is something you want to get away from as soon as possible. Before setting one of these up with your bank, be sure to ask if your repayments will be reported to the three major credit reporting agencies. If not, move on to another bank.
Suppose you have done all things suggested and your score is already in the good range, which card do you get? The card in my wallet today and the one that has been there for as long as I can remember is the Starwood Preferred Guest card from American Express. Customer service is terrific, the points you earn can be used for hotel stays or transferred to over 30 major airlines with a 5K point bonus on 20K point transfers. People with the same address can combine their balances and the “cash and points” option for hotel redemptions with this card is the best in the industry. This is my go to card.
I apply for other cards for the signup bonuses and would consider using them every day when they give me as much as the SPG card. Until I find that card, all the other cards I apply for are for the signup bonus only. I meet the requirements of the sign up bonus offer, and then put the card away until the annual fee comes due in one year. I cancel at that time after asking for a retention bonus to keep the card. No retention bonus, I cancel the card and they don’t charge the annual fee.
The next step is Time. Continue to pay on time. Continue to use your credit in a responsible manner and you’ll see your scores improve over Time. Your credit file is aging. Think of it this way.
“I paid my bills on time last month”
“I’ve paid my bills on time for the last five years”
Which of the above is a better credit risk? The person with the Time and credit history on their side.
I want to hear from the rookies and newbies that use these techniques to establish their credit files. I would love to have you share your successes and failures. Send me your stories at firstname.lastname@example.org
“Your Credit is One of Your Most Important Assets”