The Traveler's Guide to Credit Card Hacking
Updated 6/22/16- What is credit card hacking? Well, in the most direct terms credit card hacking is taking advantage of the massive point bonuses offered by credit card companies for meeting a pre-determined spending limit on a single card over a short period of time.
Some people have a single American Express card and charge everything to it, racking up 1 point for every dollar spent. At this rate, you will need to spend $40,000 to get 40,000 miles. A better idea is to apply for the United MileagePlus Explorer card and charge $3,000 over the first three months you have the card, earning you 50,000 bonus miles. Repeat this with multiple other cards, and you are now credit card hacking.
If executed in a calculated and sensible manner, credit card hacking is the key to getting you started on your travels, no matter where you want to go. The goal is to obtain cards requiring you to spend $1000 in the first 3 months to obtain a large point bonus…it is the easiest way to obtain the point bonuses. Here are some tips for approaching hacking on your own:
Do not spend what you do not have. The overarching rule with credit card hacking is that you should treat your credit card like cash. If you cannot pay off the balance in full, every single month, then you are not credit card hacking. You are driving yourself into debt and paying a significant premium on the sticker price of the items you originally purchased.
Do not buy anything that you do not need in order to meet the spending limit. If you do this, you might as well just save that money and put it towards your intended travel purchase. The margins aren’t so great that a large-scale spending spree is justified for a few thousand airline miles. This only works when you use your credit card for all purchases that you would make in the course of a normal month; nothing more.
Start small. Don’t immediately apply for 5 cards to rack up hundreds of thousands of bonus points at once. You want to ensure that you have budgeted your spending and will be able to charge and pay in full the minimum thresholds to obtain the bonus points on any given card. Start with one card and focus on getting their bonus points: seeing your hacking portfolio grow will motivate you to hone your prowess.
Know your credit score. Certain kinds of cards that offer very large point bonuses make them ideal for credit card hacking, but also have stringent requirements for approval. If you have poor credit, I’d first suggest getting a card with lower limits to build up your credit score and prove to yourself that you are disciplined enough with your finances to be able to successfully credit card hack. Credit Card Karma is a good resource to find a basic card for your needs. Starting small will also help improve your credit history and show yourself that you are able to treat credit cards in a way that makes hacking them worthwhile.
Ensure the card waives the annual fee for the first year. Essential for credit card hacking is a card that waives the first year’s fee. This allows you to take advantage of the bonus points and try out the card for a year to see if you like before actually paying the fee. If a year has passed and you don’t like the card, ask them to waive the yearly fee. If they won’t, then cancel the account; you’re not under any obligation to keep a credit card you don’t like. Just be aware that getting rid of a card will reduce the overall level of credit available to you, and can adversely affect your credit score. It’s imperative to know how your score is calculated, and manage it accordingly. See the guide below.
Avoid Foreign Transaction Fees. If you plan on traveling internationally, ensure the card benefits include no foreign transaction fees. These fees will add up quickly if you use the card frequently outside of the country, so you want to avoid companies that charge foreign transaction fees. Credit cards also generally use fair exchange rates, comparable to what your bank will give you when withdrawing cash and often much more competitive than a money changer, so it’s a bonus to be able to use your card hassle-free when abroad.
Never leave a balance on your card! Be diligent about checking the balance on every card, every month, even if you don’t think you spent anything. You should be taking an hour or so every month to sort through your spending habits anyway, and it will only be a few extra minutes to check all of your card balances. It will save you a load of hassle if you forgot you used the card. Monthly payments, particularly periodical subscriptions, are common culprits that charge your card under the radar. Get in the habit of knowing where your money is and how it’s being spent. It’ll pay off.
Travel Purchases v. Airline Miles. Cards associated with one particular airline are often redeemable only for flights with that airline. While these are often very good deals (I have a few airline cards myself), you’re generally better off getting a card with bonuses redeemable for general travel purchases. If redeeming for a flight, it allows you to pick the cheapest option and redeem your points, rather than limiting yourself to the cheapest option with a single carrier.
Read the fine print. Many carriers will restrict the points bonus if you already have another card with the company—for example, you’re ineligible for the points bonus on the American Express Blue Sky card if you are already a member of American Express. Read the fine print before applying for a card!
Take pains to manage your credit score, or at the very least know how it is calculated. For the most part, your credit score can be kept high by paying all of your bills in full, on time, but there are other factors that also go into your score. Here’s how they break down:
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35%: PAYMENT HISTORY—AVOID LATE PAYMENTS!
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30%: AMOUNTS OWED—of particular note here is not just how much you owe, but how much you owe compared to your available credit. Spending $1,000 with a $1,053 credit limit makes you less credit-worthy than if you spend $1,000 of a $20,000 credit limit —you’re using up 95% of your overall limit as opposed to 5%.
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15%: LENGTH OF HISTORY—five year’s worth of payment data is more reliable than a single year’s worth—so start building up your credit history, NOW!
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10%: NEW CREDIT—applying for 5 new cards at the same time is behavior correlated with someone in need of credit, pronto. Statistically, this makes you a less reliable borrower, so applying for a ton of credit at once can have an adverse affect on your score, though it only makes up 10% of your score and is easy to overcome with time.
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10%: TYPES OF CREDIT—a varied “portfolio” of credit is statistically preferable. Your credit score is not based solely on your credit card accounts.
Now that you have an idea of how your credit score is structured and how you should approach credit card hacking, I’ll show you some of the cards I use to help finance my travels:
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Annual fee waived for the first year, then $95
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No foreign transaction fees
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Threshhold to reach bonus: $1000 over the first 3 months
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Bonus: 30,000 miles, redeemable when booking United flights
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Notes: free first checked bag
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No annual fees
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No foreign transaction fees
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Threshhold to reach bonus: $1000 over the first 3 months
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Bonus: 20, 000 points ($200 credit)
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Annual fee waived for the first year, then $95
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No foreign transaction fees
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Threshold to reach bonus: $4,000 over the first 3 months
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Bonus: 50,000 points ($625 credit)
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Notes: you get a 20% discount when booking through chase travel, so your $40, 000 points will be $500 of credit
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Annual fee waived for the first year, then $89
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No foreign transaction fees
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Threshold to reach bonus: $3,000 over the first 3 months
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Bonus: 40,000 bonus points ($400 statement credit) towards any travel purchase
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Notes: Every time you redeem points, you’ll get 10% of the redemption value back—so when redeeming your 40,000 points, you’ll get 4,000 points back. This is an additional $40 credit to spend on travel purchases.
Citi AAdvantage Gold Mastercard*
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Annual fee waived for the first year, then $50
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Foreign transaction fees
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Threshold to reach bonus: $750 over the first 3 months
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Bonus: 25, 000 American Airlines AAdvantage miles
*they no longer offer the one I have, but there are still pretty good deals
Avoid all debt! Taking on debt with credit cards is a costly venture, and might be necessary in some cases, but taking on credit card debt defeats the purpose of travel hacking. Avoid it at all costs!
PRO TIP: never get rid of a credit card with no annual fees! It can only add to your credit score by increasing your overall credit limit. Just try to use it every once in a while, even for small purchases.
Here are a few additional resources where you can hone your credit card hacking skills and browse the latest deals: