How to Travel More for Less

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id-10014386Who doesn’t enjoy taking a vacation?  Time away from the humdrum of everyday life reinvigorates the body and soul.  Whether it be lounging on a white sand beach, exploring a big city to which you’ve never been, or possibly touring a foreign country you’ve always dreamed of visiting, these experiences broaden our horizons and enrich our lives.

The downside…traveling can be incredibly expensive.  But it doesn’t have to be.

This post – and future related posts – will introduce you to a practice that will allow for travel at greatly reduced spending levels, and in some instances, no charge at all.

This practice is known by those who “play the game” by a number of names. I will simply call it Miles and Points. Because that is what it is, collecting airline miles and hotel points to travel at greatly reduced rates, or even for free, to anyplace you may wish to go.

And no, this isn’t some gimmick or sales pitch for a “free” time share stay – I completely abhor sales pitches and offers that turn out to be something other than what they were promoted as, and would never give such practices the light of day on this blog.

This is a legitimate practice that my wife and I have personally used to greatly cut our travel expenses.

Before I begin, though, there is one catch. To be able to participate in the collection of Miles and Points, you must have a relatively high credit score. The reason will become evident as I discuss the process in greater detail, but to save you reading the remainder of this post, and possibly other posts on the topic, if you don’t have a FICO score of at least 700 (and preferably 750 and above) the likelihood of being able to participate is not very high.

For those who may not be completely familiar with the FICO score, you may read my posts titled,“The Lifeblood of Personal Finance” and “The FICO Score” to get more info on the importance of your credit score, what exactly the FICO score is and how to view your current FICO score.

Once you’ve obtained your credit (FICO) score and determined that you fall within the 700 + range, you’re ready to start building those miles and points balances to begin traveling for free!

At this point, you’re probably getting a little antsy wondering exactly how this works. “Get to the point!” – is probably what you’re thinking. So I will.

You earn miles and points primarily through credit card sign-up bonuses. Banks offer travel affiliated credit cards that provide a sign-up miles or points bonus when a certain spending threshold on the credit card is reached. Once you’ve met the minimum spend to receive the bonus, the miles or points are deposited into your frequent flier or hotel rewards account. Once in your account, you’re free to use the miles to book airline tickets and the points to reserve hotel rooms however you wish.

That’s a very simplistic description – the process is a little more complex than that, but nothing overly burdensome when the outcome is free (or relatively so) airline tickets and hotel room stays.

In future posts, I’ll give a detailed explanation – from setting up the frequent flier or hotel reward account, to picking the credit card, to meeting the card’s minimum spend, to getting the miles, and booking the associated travel – on how the process actually works.

But first, I want to address the main concern I had when I began looking at Miles and Points. How does getting these credit cards affect your all-important credit score? The last thing you want to do is take a hit to your credit score just to take a vacation or two.

The answer, after reading the experiences of others and now seeing first-hand the effect on my own credit score, is that in the big picture it doesn’t negatively affect your credit score, and in many cases will actually increase your score.

How exactly would your score increase as you add credit cards to your holdings?

As I described in my post, “The FICO Score,” a credit score is made up of various factors. The primary factor being your payment history – or the fact that you make your credit payments on time every time. If you have a score of 700 +, then you’ve been doing this. But the next biggest factor in determining a credit score has to do with amounts owed on the credit you have – otherwise known as credit utilization rate.

Here’s an example. If you have one credit card with a credit limit of $5,000 and you carry a balance of $2,500 then your credit utilization rate is 50% – not very good in the eyes of the credit gods. But if you add two additional credit cards to your holdings, each with $5,000 credit limits (and don’t carry any balance on either), now your total credit is $15,000, $2,500 of which is being used, for a utilization rate of roughly 16% – much better. And the more credit you are given (and the less you actually use) the higher your overall credit score will be.

The key in Miles and Points is you never want to carry a balance on these credit cards. Doing so will not only affect your credit score (by increasing your utilization rate), but the interest charges you’ll pay will negate the benefits of the miles or points you receive.

Whatever spending you put on the Miles and Points cards each month must be paid in full each and every month.

And one last caution with regard to Miles and Points, if you are planning on applying for a significant loan (i.e. mortgage or refinance) in the next year or two, playing the Miles and Points game may not be something you want to do. You see, while your credit score itself may be good enough to be approved for a mortgage – and in the 750 FICO score range you’d likely be approved for the best loan rate possible – underwriters also look at how many hard inquiries you’ve had on your credit report. Each time you apply for a credit card, the bank will check your credit (which is considered a hard inquiry) and if there are too many hard inquiries, that could make the mortgage lender nervous enough to ultimately deny your application. Inquiries a year or so old won’t be as big a deal for major loan approvals.

To sum up, a credit score above 700 will allow you to apply for, and in most instances be immediately approved for, credit cards that provide airline miles and hotel points which can be used to travel for free – or close to free.

In my next post, I’ll give an overview of a trip my wife and I took and how using airline miles and the benefits associated with two other credit cards saved us a significant amount of money.

Until then, happy saving and happy travels.

image courtesy of Idea go/

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