Category Archives: intro

Effect of Cancelling Credit Card on Credit Score

On my previous credit card post, I received the following question:

“Do you cancel your credit cards before the yearly fees kick in? If yes, have you noticed any hits to your credit score?”

Thanks for the question Donnie, I thought it’d be useful to provide the answer as a post, as it might be useful to everyone.

To answer your questions, I do generally cancel credit cards before the yearly fee kicks in, if I’m not actively using the card for spending or other benefits.  I prefer to keep my credit lines to as few as possible.  Truthfully, I do not pay close enough attention to the effect of individual card cancellations on my credit score, but in theory it could hurt your score, as I’ll explain below.  My take on this is that your score may drop a few points (as it does with each inquiry/pull when you apply for a new card), but as long as you’re paying your bills on time and spacing out your applications/cancellations, your score should recover over time.

What is the possible effect of cancelling your card on your credit score?  Your credit score is calculated based on a large number of factors.  A full list is here, but cancelling a credit card is most likely to affect this factor (possibly others too):

  • Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)

Cancelling a card means you no longer have the credit line associated with that card, which in turn increase your proportion of credit lines used (because your total credit lines have no decreased).  So cancelling a card does potentially have an adverse effect on your credit score.   However, as noted on the myfico page, your credit score is based on all of the factors listed, and not just a single one, so the impact is unlikely to be large.

However, you do have several options when it comes to cancelling cards, to avoid decreasing your credit lines.  Obviously, YMMV depending on the specific cards, banks/credit card companies, and your personal history, but I’ll outline my experiences.

First of all, when you call to cancel, there is a good chance the credit card issue will try to incentivize you to keep a credit card.  This can come in various forms.  Sometimes they will waive/or credit the fee (and possibly require you to spend a certain amount or make a certain number of transactions).  Some companies are known to offer your bonus miles or points to retain the card.  It’s always worth asking about any possible retention bonuses.  You could even take the bonus, but reconsider and close the card later (though the card company might not be thrilled by that).

Failing that, if there’s nothing worthwhile offered, many credit card providers can consolidate your credit line with that of another card, and then cancel the card.  By doing that, your total credit limit remains the same, or almost the same, and you would not incur as much of a hit on your credit score.  Another option is try and convert your fee paying card to a non-fee card, which most companies will let you do.  I don’t personally like this approach, unless there’s a non-fee card that I might actually find useful, because then I still have to deal with another open line of credit.  While I prefer to not voluntarily close credit lines, I would rather not deal with having too many open lines to keep track of, and it’s likely I can apply for more credit down the road and get my credit lines to where they used to be.

In summary, when faced with a credit card with an upcoming annual renewal fee:

  1. Call the credit card company and say that you’re thinking about cancelling the card, but you want to see if there are any retention bonuses available.
  2. In the absence of a worthwhile bonus, attempt to combine the credit line on the card you want to cancel with another credit line you have with that provider
  3. If you’re willing to maintain an open credit card, attempt to convert the card to one without an annual fee.

 

Throwaway ticketing

View from the Wing has an extensive post about how you can skip the last segment of a ticketed reservation and potentially save money.  It’s a pretty interesting read, although this strategy generally does not work well in the US any more (the carriers have eliminated most ticket pricing quirks these days).

I recommend reading the full post for details, but the gist of doing this is that, sometimes, booking a ticket that terminates in a non-hub city is much cheaper than booking a ticket that terminates in the hub city itself, so if your final destination is the hub city, you can book the cheaper fare that flies through the hub to some other city, but just throw away the last segment to that other city.

There’s a bunch of logistic issues to consider, for example not having any checked luggage and or making sure and making sure your carry-on luggage is either with you on the plane or checked to your intermediate (hub) destination rather than the final, non-hub, destination.  Additionally, you have to do this only for the last segment of your flight, otherwise you risk the airline cancelling the rest of your itinerary.

To be honest, when I’ve run across this concept, it has resulted poorly for the person/people involved.  The cases I’ve heard are where people  have a round trip ticket to a certain destination, but they decide to skip one of the legs on the way to their destination and take alternate transport to the destination.  Since you’ve “missed” one of the flights in the itinerary, the airline takes the liberty of cancelling the rest of your trip.  Which usually results in some last minute scrambling as well as expenditure to book a return ticket home!  Be careful about skipping legs of your itinerary!  If you’re doing it for convenience or because you have alternate transportation to replace a leg, definitely check with the airline to see if it is ok with them so that they do not cancel your entire itinerary…however if you’re intentionally throwing away a ticket at the end of your trip, then there isn’t as much a need to talk to the airline.

Time to sign up for frequent flyer accounts

This will definitely help anyone who is just starting with collecting miles and points, a great way to start the new year.

Via View From the Wing, New Girl in the Air has posted a list of frequent flyer programs that currently offer free miles for signing up for an account.  So if there’s any chance that you might use these accounts, or that you might participate in a promotion for these account, do sign up for these accounts and immediately add them to your AwardWallet, so you don’t have to worry about remembering your login (and you remember that you actually even have that account).

As New Girl in the Air points out, it’s good to act on this now because signup bonuses for loyalty programs come and go.  Also, while 500-2000 miles/points might not seem worth much (you certainly can’t book a room or flight for that amount), getting a few hundred miles here and there can add up over time (and lead to free travel).  Additionally, if a lucrative promotion for a program comes along, it saves you a step if you already have an account.

Getting started on your miles journey

This post is long overdue, but hopefully you’ve all already figured somethings out.  In this post, I’m going to outline the steps from The Points Guy’s Beginner’s Guide.

Step 1 – Sign up for programs

The obvious – if you haven’t already, sign up for the loyalty programs for any airlines/hotels that you currently frequent.  TPG’s Beginner’s Guide contains a huge list of links to all the different programs out there (no guarantees it’s comprehensive, but there’s a lot).  While the guide suggests signing up for all the programs, I personally think you should only sign up for the programs that you will participate in actively and/or  do promotions for now or in the near future.  One reason is that programs sometimes off signup bonuses at random times, for example, the current AAdvantage code (detailed here, ack: View from the Wing) that will give you 500 bonus miles for entering the code.  Another one that I know about is for Aegean Airlines, who is offering 1000 bonus miles for signing up (it’s been there for a while).  Fun Fact: Aegean is probably obscure to most of you, but they are a Star Alliance member, and their claim to fame is that you only need 20,000 status miles (EQM) on them to earn Star Alliance (*A) Gold, for which the primary award is lounge access to all *A lounges (as well as free checked bags, increased baggage allowance, priority lines, priority boarding, etc.).

Anyway, these signup bonuses are generally no more than 1-2000 miles, so it’s not really the end of the world if you miss out on them, but every little bit counts!  At first, you’ll probably want to focus on a few programs, especially ones you use, but as you learn more, and get comfortable with credit card applications and promotions, I generally recommend that you start participating in more programs (even if you never travel in them).  The point of collecting a wide variety of miles is so that you will always have plenty of options wherever in the world you may travel.

Step 2 – Use a service to manage your miles

Since you just created a few (or possibly many) accounts, you will want a way to track all these accounts.  You can keep track of your account information in email or spreadsheets, but there are various services out there that will take your login information and track your miles for you as well as their expiration dates.  The current favorite seems to be Award Wallet.  Do sign up there, and provide your login information for all of your accounts.  Award Wallet even allows you to log into your account at the airlines/hotel’s website by clicking on the program name in your list of balances.

The most basic version if Award Wallet is free, but it only shows you the expiration for up to three of your accounts.  It is highly recommended that you upgrade to the paid version of Award Wallet, 1) to see all of your account expiration dates, 2) it’s an immensely useful service that the developers work very hard on, 3) you can name you own price.  That right!  They allow you to pay as much as you believe the service is worth to you 🙂  For a full list of the differences between the free and paid Award Wallet, see here.  As of this writing, Award Wallet claims to support 425 loyalty programs.   The programs they support goes way beyond airlines, hotels, and rental cars…

Step 3 – Jump start your miles collection…

with credit card applications! 🙂  There’s pretty much an infinite number of directions to take this one.  TPG lists some of the top recommended cards under step three of his guide, and I think he’s spot on 🙂   Some of the cards he lists are the

There are various great offers, and these offers change continuously.  However, the three cards that I have listed above are considered to be the best programs to participate in, because they all have flexible transfer options to various airlines or hotels.

Most of the bloggers that I have listed maintain their own list of current top credit card deals.  For example, check out the best offers at View From the Wing

In addition to these three cards, you may want to consider applying for a card for your program of choice, if there is a signup bonus that is 40,000 or greater.  I personally think that most airline cards aren’t worth using for every day spending, and that you should be using the three cards listed above for every day spending, but some airline cards require a minimum spend (i.e. spend $X00 within X number of months).

Be careful when applying that you can indeed spend the required amount on all the credit cards you apply for within the given time limits.  There are many tricks (some have evolved and or died over the years) to helping you make minimum spends, but try to put everything you spend on a credit card (spending cash is just leaving points on the table), and use gift cards to make up for the rest of the minimum spend, if needed.  See this post for more information on making your credit card minimum spends.

I think that is probably enough information for you all, but if you aren’t completely overwhelmed, do check out the rest of TPG’s Beginner’s Guide.  There’s a few more points (no pun intended) about using the various mileage dining programs, bonus shopping malls, and following the lates deals and promos.  I’ll try to write about each of those topics in the future.  Please do let me know if there is anything you are particularly interested in reading about.

Happy collecting! 🙂

 

P.S. Now that you’ve gotten through all this, now would be a good time to start dreaming how to use your points 🙂

 

In case you didn’t get enough about credit cards…

Today’s Friday Rookie Travel Trips post at Frugal Travel Guy covers some credit card basics.  It discusses what factors affect your credit card score and gives a sample credit card churn and what you can net from it in terms of points and miles.  Enjoy!

Also, hot off the press, in the non-rookie section of Frugal Travel Guy, is a post that illustrates, first of all, some of the crazy lengths we go to to get our miles and status, and also the value (in business class trips) you can get out of all this.

Earning Miles with Credit Cards

A step back to a few basics, from all the various deals that have been posted lately.  In this post, I want to go more in-depth into one of the best tools at your disposal for accumulating miles quickly.  Credit cards and their signup bonuses.   We’ve previous covered some of the basics of credit card churning, but I’d like to go into more detail.  Most of you have probably encountered airline specific credit cards.  They usually come with an annual fee between $60-$100, and typically net you 1 mile per dollar on most purchases, and bonus miles on purchases with the airline.  While this is a way to build up airline miles, I don’t think it’s necessarily the best way.

In my previous post, I discussed rough valuations of miles based on what type of flights you take.  Let’s say you value your miles at 1-2 cents apiece. If you are earning one miles per dollar on say, the United Mileage Plus Explorer card, you’re getting roughly a 1-2% return on your card.  But to have this card, you pay an annual fee of $90 (check?).  While it’s nice that you’re getting miles and traveling for free, you could honestly find a cash back card that gives you better values.  Most cash back cards offer 1% on general purchase, but have categories where you could be earning 3-5% cash back per dollar, with no annual fee.

However, the United Mileage Plus Explorer card comes with a bonus of 40,000 (or 60,000 miles, if you are a Mileage Plus elite member (see end of post) ).  If you take that account, you are earning miles for as low as fractions of a cent.  At that rate, it is definitely worth getting the card, AND paying the annual fee (if it isn’t waived the first year, which a lot of cards do).

I would like to digress a moment, regarding credit card annual fees.  Yes, I agree that annual fees are terrible, a seemingly unnecessary expense, and if you get a card with an annual fee purely for the signup bonus, you have to somehow remember to cancel your card before the fee comes up again or else you’ll get charged again.

However, consider what you’re getting out of the annual fee…at least one free domestic trip that is generally worth much more than the annual fee (maybe even the annual fee twice over).  It’s hard to dispute the value there.  Yes you will have to remember to cancel the card if you don’t want to pay the annual feed again, but I think with today’s technology, you can set your self email, calendar reminders, etc., there’s really no excuse.  Personally, I keep a spreadsheet where I keep track of all the cards I’ve applied for, the dates I applied for each, the amount I’ve spent on each, and a few other things (if there is enough demand, I’d be willing to post a blank version of that for people to use themselves).

Another point on canceling cards with annual fees, despite how easy it makes things to just cancel the card after the bonus miles post, you should avoid doing this.  It does not look good to the bank issuing your credit card if it looks like you just opened a card for the bonus, particularly if you develop a pattern of this.  Banks may blacklist you if you do that too much.  In fact, some cards or banks explicitly prohibit doing this in the terms of their condition.  Generally, it’s best to keep a card open for at least 6 months before canceling, and when you do call to cancel, it’s not uncommon for the bank to offer you retention bonuses to keep you as a customer (sometimes including thousands of bonus miles on the spot).

So whether or not using a card such as the United Explorer card is worth it in your situation, there are several programs out there that allow you to earn points that are transferable to a wide variety of programs that are much better options than confining yourself to a single mileage or hotel program.  These programs are the Starwood Preferred Guest (SPG) program, the American Express (AMEX) Membership Rewards (MR) program, and the Chase Ultimate Rewards (UR) program (covered by Mommy Points).  Stay tuned for upcoming posts on all of these programs!  That’s all for now….

-ffc

From Mommy Points: Chase Ultimate Rewards 101

Hey everyone,

I’ve had a couple of long days at work, so I haven’t had time to post.  However, I am still keeping tabs on my blogs 🙂  Mommy Points wrote a through primer post about the Chase Ultimate Rewards Program.  Acknowledgements to her for creating this resource for us all.  I’ll summarize the main points below:

  • Ultimate Rewards points are the points earned by certain Chase credit cards.  These points can be redeemed for gift cards, merchandise, or travel at a value of about $.01 per point (more on certain things, less on certain things).  However, the maximal value of these points lies in their ability to be transferred at a 1:1 ratio into Continenal OnePass/United Mileage Plus, British Airways, Korean Air, Amtrak, Hyatt, Marriott, and Priority Club miles/points.  The best values in that list are generally considered to be transfers to United or Hyatt…but it’s nice to have the flexibility of transferring to any of those programs, depending on your particular needs at a given time.  Transfers are instant into the award program of your choice.
  • The cards that earn Ultimate Rewards points are the Chase Sapphire Preferred, Chase Ink Bold (business card), and the Chase Freedom.  Get one of these cards!  I have links for the Chase Sapphire Preferred on the Credit Card Offers page.
  • The Chase Sapphire Preferred and Ink Bold both currently offer a 50k Ultimate Rewards points sign-up bonus, while the Chase Freedom offers a 30k bonus.  The Chase Sapphire Preferred earns 2 points per dollar on dining and travel (their definition of travel is very broad, including but not limited to airlines, hotels, rental cars, taxis, buses, and subways).  The Ink Bold earns five points per dollar at office supply stores, on cable and wireless service, and landline communications.  It also earns 2 points on hotel and gas expenses.  The Chase Freedom has quarterly rotating 5x points categories (limited to $1500).  On all other purchases, these cards earn 1 point per $.
  • When buying stuff online, check if the store you’re buying from is on the Ultimate Rewards Mall.  if it is, you can generally earn an extra 2 to 20 points per dollar by using the Ultimate Reward Mall’s link.
  • Do click on the link above to Mommy Points’ post  and read it through when you have a chance!

A couple of good reads…

Over the past couple days, I’ve ran across a few interesting articles from The Points Guy (TPG).

He has been running a series about maximizing airlines elite status, with the most recent article covering mid-tier elite status I think mid-tier is the highest realistically attainable status if you’re doing mostly personal travel, so this article is worth checking out for what this might be worth to you.  The series also includes an introduction to elite status and mileage runs (where people fly on low fares purely to earn miles), an article on the value of the different tiers of elite status, as well as a couple of other articles.  I definitely recommend reading these!  But I will warn you, the articles are a bit long.

Additional, TPG has a Reader Question post about the value of American Express Membership Rewards points.  The article demonstrates some of the thought process behind valuing miles/points, and how your redemption choices affect that value.  Also, the article eventually goes into cash back cards, and there’s a long list of cash back credit cards at the end of it.

The value of miles

In this post, I’d like to discuss how you should value your miles.  Miles ARE a currency, but it can be hard to peg values on them because it depends on where you are going, which cabin (class) you want to fly in, and how you value each of these.  But it’s important to consider how you personally value miles, because that really determines to what extent and expense you would be willing to go to while accumulating miles.

 

Valuing Miles for Domestic vs International Award Redemptions

Let’s start by looking at the cost of domestic coach class tickets vs. a domestic coach miles award.  Note that there are many exceptions and variables in this, but I’ll try to make some generalizations for the sake of discussion.  Whenever booking an award, it’s good to compare the price of the award ticket you’re booking vs. the number of miles that it costs, and make your decision based on that.

Let’s estimate that a domestic ticket typically costs $250-$500.  It also normally costs roughly 25k to 50k miles to book a domestic ticket using miles. At this rate, I would say you can value miles at approximate 1 to 2 cents each for domestic ticket redemptions.  Now, lets consider valuing miles for international flights.  International coach class tickets range probably from $700-$2000.  I am really generalizing on this one, because it obviously depends where you are, where you want to go, the dates you choose, etc., but let’s say it would be about 60-100k for a coach class international award.  If you have the miles, I think you’re doing a bit better with international coach class tickets, but it can sometimes still work out to 1-2 cents a mile.  However, consider business class or even first class redemptions.  For these prices, you’re talking several thousand dollars and ranging up to tens of thousands.  Yet, if you do your homework and pick the right redemptions, you generally never exceed about 150k miles for a one way ticket.  In this case, your miles could be worth up to 10 cents apiece.

 

How should YOU value miles?

Obviously accumulating larger amounts of miles and putting it into upper class redemptions can you a lot of value in normally expensive seats.  However, should you say your miles are all worth 10 cents apiece?  No, for a couple of reasons.

The first is mainly that you don’t know if you’ll always be able to get an award ticket which values it at that level.  It’s subject to availability, and you generally have to be pretty flexible if you want the best award redemption values.

The second, is more my personal take, but I think my perspective would apply to most people.  Generally, if I travel out of pocket, I can only afford to (or at least choose) to travel coach.  Yes the miles make upper class redemptions possible at fairly reasonable cost, but I would probably never ever purchase a $10,000 business class ticket, when I could fly in coach for $1500.  That’s not to say I don’t enjoy business class and would never fly it with miles, but I don’t believe I can realistically say I value at miles at 10 cents per, because I would just choose not to fly business class otherwise.  I think there’s some happy medium in there, and I believe that I can fairly value my miles in the neighborhood of 5 to 6 cents, balancing out the notion that I would not actually have booked business class tickets at the price they’re sold at, but I do enjoy the experience and comfort of getting to fly in it.

 

Use Your Miles and Points for Your Greatest Benefit

I would like to make one final point on this topic, which has been a hot topic of late in the frequent flyer community (most of the blogs in my blogroll have made posts about this topic in the past month).  Ultimately, the most important thing is that you use your miles to do the things you value most.  Yes, I and other bloggers will post about great business and first class experiences and such, and I generally pay for my domestic trips and save the miles for international trips.  However, for some people they may not travel internationally, and/or they can’t afford to pay for domestic trips.  For some people, having free domestic flights allows them to see family, relatives, and friends, that they might not otherwise be able to do.  And using your miles for that is a perfectly legitimate use (not to insinuate that I had a right to tell anyone how to use them to begin with).  The only caveat is to try and optimize the cost of your miles based on what you do with them.

We’ve put up an introductory post about churning credit cards, which is a way to generate miles for fractions of a cent (less than $0.01).  Do check out this post, but consider that if you are able to generate RDM (redeemable miles) at such low cost, all your travel is essentially at little to no cost, whether you choose to book all your domestic travel with miles, or you book pricy premium class seats.  Until next time!

Credit Card Churning for Miles!

One of the quickest and easiest way to earn a lot of frequent flyer miles is churning credit cards.  What is churning?  The miles and points credit cards we’ll look at here generally give you some amount of bonus points for signing up, and in some case, spending a certain amount of money on the card within a certain amount of time.  For many of these credit cards, you can apply for these credit cards over and over and get the bonus miles each time.  However, in the past couple of years, the banks have started cracking down on this, so for many cards, you have to wait approximately about two years after cancelling before you can apply and get a bonus again.  There are still a few exceptions, cards which you can churn every 3 months and get a bonus.

Before you begin, keep in mind that churning cards does affect your credit.  As Rick of Frugal Travel Guy says “Your credit is your most important asset.”  If you are thinking of buying a house in the next two years, you should be careful about applying for too many credit cards (or credit cards at all), because even a small change in your credit score could affect the interest rate you are charged on your mortgage or your ability to qualify for the loan you need.

When churning cards, the short-term effect on your credit score is less than 10 points per credit card application.  In the long run, as long as you pay your bills on time and in full each month, credit card churning will not negatively affect your credit score.

And what can you get for all this trouble?  Anywhere from 500k – 1  million miles per year if you churn credit cards smartly.  That is enough for twenty free domestic tickets in coach, or about five free business class trips to Europe!

Eventually we’ll take the time to post a detailed strategy for credit card churning here.  But for now here is a link to a great article about credit card churning on the Million Mile Secrets blog:

Are you ready to Churn Credit Cards?