Tag Archives: Credit Cards

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.

 

Earning miles with credit cards

There’s a couple of posts about credit cards today.  View from the Wing writes about how the American Express Starwood Preferred Guest (SPG) card has been a long time favorite and Million Mile Secrets writes about the United MileagePlus Explorer card and the Continental OnePass card, specifically what your strategy should be right now for applying/cancelling the cards.

I highly recommend the View from the Wing article, because it is the same credit card strategy that I follow, and that I think most people would agree with.  The AMEX SPG card was actually the first affinity program card that I applied for, my ‘gateway drug’ into collecting miles if you will.  When I applied for it, I decided that I wanted a good hotel chain credit card, because I’d noticed that whenever I take vacations, my biggest spending generally seemed to be hotels, rather than airfare.  While airfare to international destinations can be quite expensive, and it is great to earn miles to get that for free, staying at hotels can add up to be much more than the airfare.  So I decided it made sense to start collecting hotel points, and I had heard the SPG card was considered one of the best all around travel cards.

Interestingly enough, I soon learned that it wasn’t considered a great card just because you could use the points to stay at Starwood (Westin, Sheraton, W, St. Regis, Le Meridien properties, among others, are all under Starwood).  I mean, there are great redemption options, even for a hotel program.  You can often get 2 cents of value from each SPG point just redeeming for rooms, but they also offer points and cash rewards, where you use fewer points but pay a co pay (typically $25-$50), and various free nights promotions if you use points for so many consecutive nights.  However, you can also transfer your SPG points to over 30 different airline frequent flyer programs (generally at a 1:1 ratio, with some exceptions such as United/Continental), and for every 20000 SPG points that you transfer, you get a 25% bonus.  Now the card only earn 1 points per dollar, except at SPG properties, but it is still considered one of the best values for general credit card spending.

The programs that offer flexible award redemptions are currently “in”, as you can see from the View from the Wing post.  The other cards that he uses/recommends are the Chase Sapphire Preferred card, which is linked to the Chase Ultimate Rewards program (which allows transfer to United, BA, Hyatt, Priority Club, among others), and the American Premier Rewards Gold (or Business Rewards Gold) card, which is linked to the American Express Membership Rewards program.  The Amex cards generally come with steep fees, (the gold card has a $175 fee which is waived for the first year), but I think they are worth it for access to Membership Rewards, and in the case of the gold card, the 4X points on airfare, if you book a lot of airfare on your own credit cards.

At any rate, I recommend reading through both of the linked posts, and applying for some of these cards if you haven’t already!  As long as you can make the minimum spend (of there is one), it’s perfectly acceptable to apply for both an American Express and Chase card simultaneously to jump start your mileage accounts.  Not only that you could apply for the business versions of any cards that you apply for, and your applications will be considered (and approved if you are creditworthy).

On a side note…I decided over the weekend to go “all in” on the AA DEQM (TEQM for IL/TX and CA flights).  I’ll make a separate post about that, but the gist is, I’ve booked 9 roundtrip flights on AA in the month of January, all on weekends no less!  it’s gonna be one hellish month of flying, but hopefully i’ll get 70-80k for EQM on AA, and be well on my way to executive platinum status with them.

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

A few good deals (and credit cards!)…

Got a quick post on a few good deals…

Million Miles Secrets posts about getting 500 free Hawaiian Airline miles for connecting your Twitter account to your Hawaiian Airlines account.

Also, you can currently get 1,500 United for a (now $25 minimum) purchase at Gilt Groupe.  It’s only for new members though.  However, I’m sure most of us also have multiple email accounts that have not registered on Gilt yet.

Also, this a little bit older, but Million Mile Secrets had a post on a couple of good credit card deals

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 Credit Card Churn by View From The Wing

Following up our recent post on credit card churning, View From The Wing is out with a post on a recent credit card churn that netted nearly 200,000 miles.  Combine that with his recent post on taking a dream vacation on credit card signup bonuses, and you can see how with a bit of attention, those bonus miles can really count!

Acknowledgements to Gary at View From The Wing for these two excellent articles.

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?