You Can Travel Hack and Still Have an Excellent Credit Score
It's better to see something once, than to hear about a thousand times.
One of the biggest eye openers for me in the past few years has been the idea of travel hacking. I had my first credit card when I was a senior in college. It had a $500 credit limit. A few months later, I was already maxing out that limit. I had no concept of credit (despite majoring in Econ), let alone how to use it wisely. Fast forward a few more years, I got into more credit card debt. Thankfully, I was able to put a stop into my credit card debt and started getting wise about its use.
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Today, I have multiple credit cards. Some cards I've had for years, some cards I've only opened for a year or two. People are generally afraid to get into travel hacking because they do not understand how it works or how it affects their credit score. Majority of us fear that having credit cards automatically mean expenses, but it doesn't have to be that way. When used wisely, using credit cards for travel hacking can be a lucrative way to see the world at a fraction of the cost.
Travel hacking is basically earning frequent flyer points or miles without actually flying or spending lots of money. It takes advantage of credit card bonuses to accumulate these points or miles to be redeemed for a flight or a hotel stay later on.
Check out these site to learn more:
- Travel Hacking Cartel (one of the first sites I joined to get started and learn more)
- The Points Guy (great for latest credit card bonus updates)
- Chris Guillebeau (this guy visited every country in the world)
Of course, there are so many other sites out there to learn more, but get started and see where you next destination will be.
As for me, here's my advice when it comes to travel hacking and ensuring your credit score remains excellent so that you can do more of the things that you want to do and see. Travel hacking can necessitate opening and closing of credit cards in a span of a few years to take advantage of bonuses. This can absolutely hurt your credit score, but if done the right away, it can be the most lucrative thing you can do.
Travel hacking isn't for everybody. Frankly, because traveling is not everyone's priority. Traveling has exposed me to so much and I've had a chance to meet many great people in the process. For me too, part of my family lives abroad and banking points and have that flexibility facilitates a way for us to visit them without added expense. Travel hacking is also in a sense a tax free way to get more out of life. Bonus points can convert to a few hundred to a thousand dollars that do not get taxed like income. Without further ado, some advice on travel hacking and ensuring your credit score remains in the Excellent range.
Watch Your History and Your Limits
A good majority of your credit score is determined by your credit history. For many of us, our first entry into our credit history will be a credit card at 18 or a student loan. I still have a few cards that I opened since I was in my early 20s. I barely touch these cards except to keep them active every few months or so. Because I've had them for a while, they look good on the credit report since it shows my history of on-time payoff and that will be reflected on the credit score. That is important. You can get your credit score through FICO.com so that you are aware where you stand.
Side note: it's important to check your credit report at least once a year to ensure all of the information listed is correct. Learn more here.
Something to keep in mind too if you are keeping these old cards. Keep them active every few months or so by charging something small and paying off a charge. Downgrade if necessary to eliminate annual fees since you don't want to be paying for something that you are not taking advantage of. Keep that credit limit intact as this helps your debt-to-credit utilization ratio. This is important as your debt-to-credit ratio is a big part of your credit score. The debt-to-credit ratio is calculated in two parts: on a per card basis and overall. Here's what this means for the overall calculation, if you have 4 credit cards, all with a $10,000 credit line, you have $40,000 in credit. If you have a balance of $1000 across all 4, your debt-to-credit ratio would be 2.5%. A good debt-to-credit ratio is around 30%. By having good debt-to-credit ratio, you signal to potential lenders that even though you can spend more, you have been responsible and have not maxed out your limits.
Know Your Current Spending
Understand where your money is going. The key to ensuring you take advantage of credit cards properly is to not use it for unnecessary things. I'm normally on the lookout for good bonuses on credit cards. Bonuses typically are available after you spend a certain amount within a specific time frame. For example, this can mean spend $5000 within 3 months. By tracking your monthly spending and analyzing how to hit that max spend to trigger the bonus without incurring additional debt is the key to travel hacking on the ground. You see, travel hacking doesn't even happen in the air, it happens before you even get on a plane and this is where it is important to be diligent about how you use your credit cards.
Most of our household bills are paid on a credit card. This allows us to earn points when we pay. For a newly issued card, I normally update all payment options for these recurring bills to the new credit card so that we can maximize the spend. You are not doing anything special at this point, but having your bills point to a new card. Since some of the bills are the same each month, you should not be surprised with any new or large expenses.
Plan Your Future
When it comes to travel hacking, you have to know the game a little bit so that you can play by the rules. The key is to also plan ahead. Where are you looking to go? Who is the best airline to use to get there? What are your options for accommodations? By being informed about your future plans, you can figure out the best place to get those bonuses and the best way to earn them. This saves you a lot of hassle when you are ready to plan your trip.
A part of planning for your future too is figuring out if you are expecting large purchases in the future. You can maximize those purchases by making it work for you. Here's an example. My husband and I were saving up for our wedding a few years ago. Our venue was at a restaurant. Instead of writing a check to the restaurant to pay for our wedding, we opted instead to use our credit card to pay for it. There was no extra fees if we used the card. This allowed us to maximize our points as certain cards will double to triple your points depending on the category of spend. From there, we paid the balance of the card and earned enough points to pay for a future flight. We didn't necessarily do anything extra, just used our card to pay for something big.
Part of successful travel hacking is to never get into debt. Save cash and make sure you pay of all credit card balances. Don't get yourself into debt just for a "free" flight ticket because if you break down the numbers, your interest rate payment could be eating that "free" bonus.
Track, Track, Track
It's important to keep track of
- the credit cards you are opening and keeping
- when and how much the renewals are
- the max spend to get the bonus
- the max spend time frames
- when you should close cards
- when you can apply for it again
- how much points you have
- the credit limits you have
- when the points or miles expire
If you talk to a lot of travel hackers, they will proudly boast their spreadsheets to keep everything tracked and in one place. This is the diligence that is necessary to ensure you earn the most and keep your credit score in tip top shape.
Today, personally, I am accumulating points for an eventual trip. On last check, my credit score was in the Excellent range. So it's definitely possible to accumulate points and still have good credit. Even if you don't know where you are going just yet, to me, it's a little piece of mind that we can go anywhere without paying an exorbitant amount. The points have come in handy for some last minute trips to see family abroad too.
Do you travel hack? How has it affected your credit score? Let us know your best travel hacking trip.
If you are looking for tips, check out the links above or find groups on Facebook related to "travel hacking" or "award travel".