Using Credit Cards To Travel For Free

Introduction

Signing up for credit card offers is a key ingredient for those wanting to travel without spending a dime. With miles and points earned from credit card sign up bonuses, you can cover just about any travel expense. On this page, I will provide an introduction to the “miles game,” explaining how to travel for free using credit cards.

I would like to point out that I have done quite a bit of research to put together this page, and that everything here is legal and safe. In addition, when it comes to credit cards, there are both responsible and irresponsible ways to do things. I will be focusing on responsible credit card use which should increase your overall credit score over the long term.

Galapagos Tortoise

You could fly to the Galapagos Islands off the coast of Ecuador and visit this guy with just one credit card sign up bonus.

The reason why credit card offers exist is that large banks (especially in the U.S.) cater to credit card customers by providing large one-time offers with their cards. They use these offers to lure in customers, most of whom keep the cards for a long time and do not pay off balances in full every month. The banks end up making so much off the cards in the long run through interest and annual fees that their profits far exceed the initial bonus offering.

However, the rules do not forbid signing up for the bonus offers, paying your balance in full, and cancelling your cards before you have to pay for the annual fee a year out. This is the premise behind traveling for free using credit cards.

There are a few small catches. First, each credit card that you sign up for results in a “hard credit inquiry,” which can reduce your credit score by 2-5 points per inquiry in the short term. However, after 6 months, the effects of an inquiry are reduced to nearly nothing, and after a year the credit inquiry no longer has any effect on your credit score. After 2 years, there is no record of an inquiry on your credit report whatsoever.

The second catch is that signing up for new accounts will decrease your average account age, which lowers your credit score. However, as is the case with the first catch, this only temporarily decreases your credit score, and only by a small amount. Eventually these new accounts will either get older, or, in the newest credit scoring model, be removed from your average account age calculation when you cancel them. Both ways, your score will bounce back up.

In most cases, signing up for credit cards will actually increase your credit score in the long term because it will decrease your credit utilization ratio. For example, if you currently have one card with a $1,000 credit limit, are putting about $700 worth of expenses on your card every month, and are paying it off in full, your credit utilization ratio on your credit report will be 70%. However, if you have 5 cards which have a total $10,000 credit limit and are spending the same amount every month and paying it off, your credit utilization ratio will be at 7%. Credit utilization ratio has a large impact on your credit score, the lower the better.

Playing the “miles game” is not for everyone. There are certain things you should have:

  • The organizational skills to keep track of all your credit cards and the responsibility to make your payments on time and in full
  • A credit history of at least two years (to avoid rejection for having too short of a credit history)
  • A FICO score of 730-740 or higher. You can get an idea of this by signing up for an account with Credit Karma. NB: I use a junk e-mail account for Credit Karma since they do send email spam sometimes. I also ignore their sponsored recommendations when I log in to check my score.
  • A reportable income (for credit card applications)

In addition to the above, I would not be applying for credit cards if you are planning to take out a large loan (e.g. a home loan) in the next 1 or 2 years because the credit inquiries or new accounts could adversely affect your credit report during this time period and you may end up paying a slightly higher interest rate, which can be a lot of money on a big loan. Conversely, if you already have a fixed rate loan with a great interest rate and are not planning on refinancing in the next couple years, then you are set.

A typical airline credit card bonus will net you 50,000 miles or points, which is enough for two free round trip flights anywhere in the US or Canada on most airlines, or an off-season trip to Europe or South America on some airlines. However, good bonuses can range from 30,000 all the way to 75,000 miles/points.

Hotel credit card bonuses can vary greatly, but most cards offer enough points for a few free nights. On this page I will mostly focus on airline cards since nearly everyone who is looking to travel for free will need their flights covered, but only some travelers prefer to stay in hotels and use hotel points since there are other options available. Just know that hotel credit cards do exist and many of tips on this page can also be applied to them.

Getting Started

Playing the miles game takes a lot of planning. First, you want to decide what your goals are. Do you want to go to Hawaii with your partner and stay in a nice resort, or are you thinking about backpacking solo all around South America? Or are you one of those people (like me) who just wants to go everywhere and use miles where they are best spent?

Once you decide where you want to go, figure out how many miles it will take you to get there in each program. Frequent flyer programs can be separated into three redemption categories. Some programs base the cost of an award flight on what regions you are flying between. For example, flying from anywhere in the mainland US or Canada to anywhere in the Caribbean using United miles will cost you 17,500 miles. For convenience, I have linked the award charts for a few region-based programs below.

United Airlines 757

United Airlines has a solid region-based award program.

A few programs have distance-based awards, like British Airways. Sometimes by using distance-based awards you can get incredible values for your miles. For instance, booking a one way flight from Seattle, Portland, San Francisco, or Los Angeles to Hawaii would cost you 17,500-22,500 miles with most region-based frequent flyer programs. However, booking the same flight on Alaska or American Airlines with British Airways miles (called Avios) would only cost 12,500.

Other airlines like Southwest and JetBlue have cost-based awards, where the cost of an award is related to how much money it would cost to purchase the flight. More expensive flights on Southwest and Jetblue generally require more points to book, and less expensive flights require less points. Although points in these programs do not have a fixed monetary value anymore thanks to recent program changes, Southwest points are usually worth between 1 and 2 cents per point and the value of Jetblue points hovers between 1 and 1.3 cents per point when booking.

Generally, region-based awards are best when you are wanting to fly long distances within a region (e.g. Jackson, MS to Anchorage, AK) or from the far side of one region to the far side of another (e.g. Seattle to Istanbul, Turkey). They are especially useful when flying to small airports which would otherwise cost quite a bit to fly into (like Elko, Nevada). Distance-based awards are best when you are flying a short but expensive nonstop flight (e.g. Seattle to Edmonton, Alberta), or from the close side of one region to the close side of another (e.g Miami to the Bahamas). Cost-based awards are best to use when flying between a pair of cities which have relatively low ticket prices (e.g. Boston to Philadelphia).

Applying For Cards

If you have a good idea of which miles or points you will need for your trip, start doing research on the current credit card sign up bonuses and apply to the cards that will get you to where you want to go. As a rule of thumb, I typically apply to no more than 1 card per month to limit credit inquiries, and do not apply to another card until I am close to meeting the spending requirement (described below) on my last card. The main things that I look at when determining which cards I will apply to are:

  1. Number of miles/points in the signup bonus
  2. Which program the miles/points are for, or (even better) if they are for a flexible program with multiple transfer partners like Chase Ultimate Rewards or American Express Membership Rewards
  3. The spending requirement to get the bonus. If the spending requirement is $5000 in 3 months, and you usually only spend $2000 every 3 months, then don’t apply for the card unless you can find a way to charge more of your expenses to credit card. A good way to know how much you usually spend is by using mint.com to keep track of your expenses.
  4. Whether the card has an annual fee, and whether or not it is waived the first year
  5. Whether the card has a foreign transaction fee if you plan on using it outside the country
  6. Whether the card has a chip in it if you plan on using it in countries where chips are standard
  7. Extra bonuses, like airport club memberships or statement credits

Keep in mind that you will probably not have most of your cards for more than 6-10 months, unless they have no annual fee. If the card I am applying to has an annual fee, I make sure to apply to another card with the same bank that does not have an annual fee, so that when it comes time to cancel the card after 6-10 months to avoid the fee, I can ask to reallocate the available credit to the card with no fee. This way, when I cancel the card, my credit score will not go down because my overall credit limit remains the same.

Chase Bank Branch

Chase offers the Freedom credit card with no annual fee. It is a good card to reallocate credit to.

Applying for cards online is usually the way to go. It is quick and easy, and the card gets mailed within a couple weeks so you can start using it to meet the spend requirement. Keep in the mind that the clock for the spending requirement starts ticking as soon as you are approved for the card, not when you actually get it. If you are worried that you will get denied for the card, then you might want to apply in person at the bank if possible. The reps are usually nice and friendly, however I probably wouldn’t mention that you are planning to cancel the card within a year if it has an annual fee. They will work for you and try to help you get approved for the card. If they try to sell you other products (like in the case of Chase, checking accounts with fees), a simple “no thanks” will suffice.

I always glance through the terms and conditions when applying for a card. Usually they will tell you how long you have to wait before cancelling the card or they will take back the bonus (usually 6 months or less) and will also list the foreign transaction fee. If I am applying for the card online, I will take a snapshot of the original offer in case I do not get my full bonus miles. Fortunately, this is a rare occurrence. Remember that the interest rates do not matter since you will ALWAYS be paying in full and will not be doing balance transfers or cash advances. If you are not making your payments in full, then you should not be reading this page.

Next Steps

After you receive your card in the mail, call up the number and activate the card. The next steps are entirely optional, but I like to do them:

  • Call the number on the privacy notice to limit sharing of information and avoid more junk mail
  • File all the papers away somewhere so you can find them if you need to refer to them again
  • Create an online account for your card, or tie it to any existing account you may have with the issuing bank
  • Sign up for autopay and make sure you select “pay balance in full.” If you do this, make sure you always have more than enough in your checking account, or else your credit score will get damaged.
  • Sign up for paperless statements to save trees and avoid cluttering your mailbox
  • If the card has a very low credit limit and you think you might exceed it in a month, set up an email alert to notify you when you are near your credit limit
  • Request an authorized user if you are applying for a card which gives you more points for adding one. I would suggest adding someone who is not related to you and has never lived at your address so that their credit score will not be affected. If the bank asks for the user’s SSN or other identifying information, it’s probably not worth it, but I have never had this issue. When you get the authorized user’s card in your mailbox, just file it away somewhere safe and don’t use it.
  • Keep track of your credit cards by using a credit card organization sheet like this one

Next you will need to meet the spending requirements for the card. Basically, this just means using the card for all of your purchases, in place of how you paid for things before. Some folks also like to do something called “manufactured spend” to increase their credit card spending, which I will cover in a later post.

Once you have met the spending requirement for the card, you can move onto another card if you want. Just don’t forget about the card completely, because you will have to come back after 6-10 months to reallocate credit and cancel (unless the card has no annual fee).

Cancelling Cards

When the time comes to cancel a card (6-10 mo after applying), you will first want to make sure that the card has no balance on it. Then you will want to call up the credit card issuer using the number on the card, ask that all of the available credit be reallocated to your no annual fee card that you also have with the same bank (you remembered to apply for one, right?!), and close out the account. Remember, by reallocating your credit before cancelling the card, you prevent your overall credit limit from going down and pushing your credit score down with it. Sometimes, the representative will have to leave a small amount of credit on the card being cancelled; in this case just reallocate as much credit as possible and take the small loss, as it will likely only have a negligible effect on your credit score.

Representatives are typically trained to do everything within their power to prevent you from cancelling a card, like waiving the annual fee or giving you more bonus miles. If the offer is enticing enough, feel free to keep the card. However, you will probably do better with a sign-up bonus on another card.

Note: For some cards, including the majority of American Express and a few Citi cards, the issuer does not let you reallocate available credit from a card until you have had it for 13 months. Obviously, this poses a problem because if you wait until 13 months you will have already paid the annual fee shortly after 12 months. To avoid paying it, I would recommend the following steps:

  • Call up the issuer again, and double check by asking another representative to reallocate the credit and cancel your card. Sometimes individual representatives aren’t aware that reallocation requests can be processed so they will just say that it is not possible.
  • If this does not work, then just after the 12 month mark, but before you are charged the annual fee, call up and downgrade your card into a card which has no annual fee. (I have had more success downgrading after the 12 month mark than before it, but if you prefer, feel free to try before as well.)
  • Wait another month or two until you have had the card for a total of 13 months. Now you will be able to reallocate the credit and cancel the card.

That’s it. You are done! Welcome to traveling for free with credit cards! Remember that your miles will expire according to program guidelines (usually after 1.5-2 years) if you do not touch them over a set amount of time. And since programs devalue their miles every once in a while by making awards cost a bit more, you probably want to use your miles soon.

Thanks for reading, and if you have any questions, feel free to leave a comment below!

Josh

 

Photo by wbaiv

Photo by TheodoreWLee