How "Travel Hacking" Can Help Improve Your Credit Score

Yesterday, I showed you how to get free airfare to almost anywhere in the world.

Today, I’m going to take it one step further…

Let’s say you already have the Chase Sapphire card I mentioned yesterday and you’re using it on your normal expenses. (Again, if you can’t meet the minimum with normal expenses, don’t worry! I’ll show you the really cool trick in a moment.)

Once you notice you’re getting close to the minimum on your Sapphire card, go ahead and find another attractive rewards offer.

For example, the second card I ordered was the Barclaycard Arrival Plus World Elite MasterCard.

This card also offers 40,000 miles. It has an $89 fee, also waived the first year. (I’ll also show you how to avoid paying those fees later.)

With the Barclaycard, you’ll earn two miles for every dollar you spend. So in all, you’ll earn about 50,000 miles for signing up.

Just like with the Sapphire card, though, you must spend $3,000 in the first three months.

Once you charge the minimum, you just rinse and repeat. Simply find another one with an attractive offer.

It really is as simple as that.

Before we move on, let me address some concerns.

“Will Travel Hacking Hurt My Credit Score?”

First, while we’re shelling out disclaimers, if you’re going to travel hack…

• You should ALWAYS pay off your balance in full every month. Otherwise, the interest charges will quickly overwhelm the rewards. If you’re using your card only for normal expenses, this shouldn’t be a problem.
• And NEVER miss a payment. A study conducted by FICO found that just one late payment can cause as much as a 90-110-point drop on a credit score.
• Third, use travel hacking responsibly. I’ve met plenty of travel hackers who, even though they sign on to several cards per year, have amazing credit.

Yes, it’s true. Every time you open a new card, you’ll get a small ding on your credit. It’s usually about five points. Someone who opens several accounts in a short period of time will see their credit score go down a tiny bit.

But if you do it right, you’ll come out even better in the long run.

That’s right. It will help your credit.

See, the biggest factors in calculating your credit score are payment history and level of debt.

From FICO’s website, myfico.com

Despite what many people think, opening new accounts can actually boost your score. Even though you’ll take a small hit at first, having more credit on your balance will increase your credit-to-debt ratio (amounts owed), thus, over time, raising your score.

Let me give you an example…

If you have a total credit limit of $5,000 and your debt balance is $2,500, your debt-to-credit ratio is 50%. That’s terrible. It will lead to some scars on your credit if you keep it at that level, even though you have only one card and you’ve (presumably) never missed a payment.

You can do two things to quickly improve your credit score. That’s pay off the debt and/or open more lines of credit.

For example, let’s say you pay off $500 and open up a new line for $3,000 in the same month. Now, with $8,000 in credit and $2,000 in debt, your ratio has dropped down to 25% for that month. Sliced in half… just like that.

That’s a huge jump even though you paid only $500. Keep your ratio low and your credit score will float higher.

Stay smart and travel hacking will inevitably HELP your score.

Take, for example, Scott Mackenzie, who writes the Hack My Trip blog. After opening six credit cards in one year, he received 150,000 miles from United Airlines, $400 in gift cards, two free nights and elite status at Hyatt Hotels, and 30,000 Starpoints from Starwood Hotels.

In his words…

“Although each ‘pull’ for your credit history by a card issuer will lead to a small decrease in your score (about five points), my current credit score is a good 40 points higher than when I started.”

And here’s another example…

“When I first began the travel hacking game,” one real estate investor (and pro travel hacker) writes, “my credit score was 720, and now it’s 795 (with seven mortgages)!

“Overall, the key to my credit success is to keep my credit-to-debit low. This is how I can be approved for 50-plus credit cards and still have a high credit score of 795.”

Hope that clears things up.

But what if you can’t meet the $3,000 minimum placed on many of these cards?

Here’s a neat little trick you can use to get around this problem…

Two words: Amazon Payments.

Amazon Payments is essentially PayPal, but with one big difference (I’ll get to that in a moment). If you’ve used PayPal, signing up for and using Amazon Payments will be a breeze.

For this to work, though, you’re going to need a friend.

First, you both sign up for Amazon Payments. Then you link up your travel rewards credit card just to your account.

Now here’s the difference between PayPal and Amazon Payments…

Amazon Payments allows you to send up to $1,000 a month to anyone in the world (with an Amazon Payments account) for free. Even from a credit card.

So all you have to do is send $1,000 each month to a TRUSTED friend from your travel card.

That friend will then, in turn, write you a check for $1,000.

You deposit that check, pay off your card balance, and you’re done. Do this each month and you’ll meet the minimum without spending a penny on the card on anything.

Just make sure you don’t send money back and forth between accounts. Amazon doesn’t like that.

Hope this helps you get started on reaching your travel goals.

Regards,

Chris Campbell
for The Daily Reckoning

P.S. In yesterday’s issue of Laissez Faire Today, I went one step further and showed my readers how to find a comprehensive list of the best travel credit cards out there right now, as well as a few helpful links to get them started on their own travel hacking projects. Not only that, but I also gave them a rundown of some free ways they might be able to turn their own everyday ideas into real money. It’s all part of being a reader of the FREE Laissez Faire Today email edition. These opportunities are packed into every single issue, so don’t miss a single one. Sign up for Laissez Faire Today, for FREE, right here.