The world of points and miles can be endlessly rewarding, with options such as free flights, upgrades to premium cabins, complimentary hotel rooms and discounts on gift cards and merchandise. It can also seem bewildering, if you’re a neophyte looking in from the outside. Here are some of the most important things to know when you’re getting started with the points and miles hobby:
Pay Off Your Credit Card Balances Every Month
This is the cardinal rule—if you can’t do it, you shouldn’t be collecting points and miles. Most credit card issuers charge interest north of 20%, and those interest charges will wipe out any benefit you gain from bonuses and spending. Before you start, be honest with yourself on this point.
Monitor Your Credit Score
Enroll in a free service such as Credit Karma so you can follow your score on an ongoing basis. You’ll also be able to track your accounts and credit inquiries and get an overview of what components are most important in making up your score.
Apply for One Card at a Time
Slow and steady wins the race. The cards you want will have minimum spending requirements within the first three months, and you don’t want to overextend your ability to earn bonuses. In addition, applying for multiple cards at the same time is a red flag for credit card issuers.
The More Credit You Have and the Less You Use, the Better
Your percentage of credit utilization is a key factor in determining your score. If the total of your credit lines is $4,000 and you run up balances of $2,000, you’re a poor credit risk; if the total credit available to you is $40,000 and you’re only using $2,000, you appear to be a responsible consumer.
Try Not to Cancel Cards Within Your First Yearly Cycle
If you do so, you run the risk of having your bonus revoked. Credit card issuers are looking for ongoing relationships with customers who use their cards regularly.
Apply for Lower-Tier Cards First
Don’t start out by trying to snag an Amex Platinum or Chase Sapphire Reserve. Entry-level cards require lower credit scores and more modest credit limits and are therefore easier to get. If you’re a newbie who wants the Sapphire Reserve, start with the Sapphire Preferred; establish a good payment record, and you can request a product change to the Reserve after a year or two. Amex is all about relationships, so begin with a Green Card and work your way up.
Apply for Chase Cards First
Chase has many of the travel and rewards cards that people want. They also have the 5/24 rule: they will reject anyone who has opened five or more cards in the past two years (from any issuer, not just Chase). If you have your heart set on some cards from Chase, start with those.
American Express Has a Lifetime Limit of One Bonus per Card
Since you only get one bite at the apple, bide your time and wait for the highest signup bonus. Those bonuses change frequently and can fluctuate wildly, so be patient and pick your spot.
Be Cautious With Credit Applications
They stay on your credit report for two years; it’s one of the factors lenders will look at. While it doesn’t have major impact, anything over five or six inquiries in two years will raise eyebrows. Be particularly careful in situations such as car dealerships, where credit managers may run multiple reports with different lenders.
If You Do Cancel a Card, Always Try to Retain the Credit
While this is only possible if you have more than one card with a particular bank, it’s important: remember that more credit is better for your credit score since it lowers your utilization ration. If you ask, issuers are usually able to shift the available credit from one card to another.
Don’t Open New Cards Prior to Major Purchases
If you anticipate buying a car or applying for a mortgage in a few months, don’t apply for a new credit card. Mortgage lenders, in particular, will subject your financial life to close scrutiny. If you have a home repair project scheduled or plan to buy some major appliances, on the other hand, it could be the perfect time to get a new card since those purchases will help you qualify for the bonus.
If you follow these basic rules, you’ll be able to enjoy the ride. And the first time you book an award flight or a free hotel night, it will all be worth it.