Credit Card Points and Miles: A Primer

In the years following the credit crisis, payment card companies and banks are bending over backward to offer fantastic sign-up bonuses to attract customers. These organizations offer lucrative airline and hotel miles as well as hard cash in the form of statement credits often for just signing up for a card or account. You might think these offers are too good to be true so I’ll reveal some of my best practices and tips for acquiring a bounty of miles without ruining your credit.

The most important number when it comes to lending is your credit score, which is a numerical value that determines your credit worthiness. Think of it as a report card for your credit. You should always keep your credit score over 700 if you intend to apply for a credit card. If you have never had students loans or a credit card your credit history will be minimal and your credit score low. One way to “borrow” a credit history is to ask a friend or family member to put you as an authorized user of their credit card which will help boost your score. It is worth noting that your credit score will drop about 5 points for each credit card you apply for, regardless if you are approved or not.

Do Your Homework

Two sites I use to track my credit score are CreditSesame and CreditKarma. Both are totally free and provide relatively up to date information on your credit score as reported by various credit bureaus. If you want your actual credit report you can get it for free each year at Annual Credit Report.

Once you know your credit score is above 700 it is time to pick a card. Generally, cards award airline, hotel, or cash bonuses after placing an initial spend on the card as well as after achieving a certain level of spend (e.g. $1,000 in the first 3 months of membership). For a list of credit cards with low minimum spend requirements you can check out the list compiled by Frugal Travel Guy or the The Frequent Miler.

If you have a particular trip or adventure in mind, like a flight to Santiago, Chile from New York City, it can be advantageous to look at airline award charts to determine how many award points you will need and then pick a card that gets you there. Using the previous example, a roundtrip domestic flight on Delta from JFK->SCL would cost 30,000 miles. The Delta gold American Express happens to award 30,000 miles after spending $500 on the card in the first three months, making this trip free after taxes and fees.

Some credit cards have fees which may be waved during the first year. If the card you’re applying for charges a fee remember to put a note on your calendar to cancel the card before a year has elapsed. With so many cards on the market it is rare that you will want to keep the card for more than a year.

Applying for a card is usually as simple as completing an online form with your personal information and social security number. Business credit cards may ask you for a federal Tax ID number. If you sell items on eBay or run your own business you can apply for a business credit card in your own name as a “sole proprietor” and provide your SSN instead of Tax ID number.

Keep your credit card applications to one per bank per 90 day period (two if you are applying for a business and a personal card). It is often worthwhile to apply for a business and personal credit card from the same agency simultaneously as it will only require one pull of your credit report instead of two.

Don’t Take ‘No’ For An Answer

After applying for a card you will usually receive immediate notification if you have been approved. If you are not approved for the card and have a credit score over 700 do not fret. It may be that the credit company needs to verify your home address or annual salary, especially if you are a first-time applicant. Check this post for tips as well as phone numbers for credit card reconsideration lines.

Once you receive your card there are some general rules to follow:

  • Always pay your card in full. No excuses. Use a credit card like a debit card and never go over your limit. Paying interest on the card will cancel out any bonuses you receive from card ownership. Setting up automatic payments from a checking or savings account is an excellent idea.
  • Put all your spending on the card, including small purchases. Credit cards award bonuses at signup but also give rewards for using the card (usually 1-3 points or miles per dollar spent).
  • Don’t run up your bill over 50% of the card’s credit limit as this will lower your credit score. If you have a card with a $4,000 credit line and make $2,500 worth of purchases, pay your bill early online.
  • Take note of any special bonuses the card provides. Some co-branded airline cards provide free checked bags or priority boarding. Others offer bonus points for certain spend categories (restaurants, office supply stores, hotels, etc).
Once you start collecting a bunch of miles you’ll want to keep track of how many points you have and when they expire. I use Mint to keep track of my bank accounts and credit cards and Milewise to keep track of my miles.

Finally, here are a few good introductory credit cards

Spend ‘em While You Got ‘em

Collecting credit card points and miles can be a great way to see the world with cheap airfare and free hotels. However, be warned that although miles and points can be used like cash they do not accrue any interest. Don’t be a point and mile hoarder – go out there and have some fun.