The Easiest, Quickest, and Cheapest method to collecting millions of miles/points is to simply apply for credit cards! This is by far the most lucrative method available today, and there really isn’t anything else that comes close. For example, in the past five years, I’ve opened/closed at least 50 credit cards, and accumulated over 3 million miles/points. Yes, that’s correct, it’s possible to accumulate a balance in the Millions!
But if it’s so easy then why isn’t everyone doing it?
The simple answer is, Fear. We all fear what we don’t know, and conventional wisdom is that applying for too many credit cards is bad, and it will damage your credit score.
I. Your Payment History
Your payment history accounts for a whopping 35% of your total credit score. Therefore, as long as you pay all your bills on time each month, your score will continue to rise. If you have late payments, missed payments, or in collection, your score will go down.
II. How Much You Owe
30% of your credit score is based on how much you owe, or your debt-to-credit ratio.
For example, suppose you have only one credit card with a credit limit of $5,000. If you carry a balance of $2,500, then your debt-to-credit ratio would be 50% ($2,5000/$5,000). This ratio would be considered really high, and your credit score would drop.
Now, let’s suppose you have two credit cards and each with a credit limit of $5,000. If you carry the same balance of $2,500, then your debt-to-credit ratio would now be 25% ($2,500/$10,000).
As you can see, by opening more credit cards, your total available credit goes up, and your debt-to-credit ratio will go down.
III. Length of Credit History
The length of your credit history will account for 15% of your credit score. Therefore, the longer your credit card accounts are opened, then the higher your score will become. Never cancel credit cards which have been opened for 10+ years. If you cancel these credit cards, then your credit score will drop big time.
IV. New Credit
Next, 10% of your credit score is based on new credit. Every time you apply for a new credit card, you will have a hard pull on your credit report. If you have too many hard pulls in a short amount of time, then these multiple “inquiries” will appear on your credit report. Multiple inquiries is interpreted as a sign of high risk, and will cause your credit score to drop.
V. Credit Mix
Finally, the last 10% is based on the different types of accounts you have. For example, credit cards, mortgage loans, and retail accounts. Overall, the credit mix won’t be a key factor in determining your credit score. It’s only really important if your credit report didn’t have any of the other components to base a score upon.
But how does this affect my overall credit score?
Every time you apply for a new credit card, your credit score will drop 2-7 points in the short term. For example, if you were to apply for a different credit card each day, for four days straight, then your credit score would take a big hit! Therefore, in order to “game” the system, you simply apply for multiple credit cards on the same day. The end result is that you will only have one hard pull instead of racking up four hard pulls!
On the flip side, since you opened multiple new credit cards, your total available credit will increase. Remember, if your total available credit increases, then your debt-to-credit ratio will decrease! The end result is your credit score will rise in the long term.
To sum it up, YES, your credit score will drop a few points in the short term, but after a few months, your credit score will rise higher! Why? Because your debt-to-credit ratio will decrease, and this component is 30% of your credit score!
Don’t Apply for Credit Cards If…
- Credit score is low: Obviously, if your credit score is low to begin with, then you will have a hard time being approved for new credit cards. The best thing to do is to raise your credit score before you can begin applying for multiple credit cards. Try to get your credit score to be 720 before trying to rack up miles/points.
- No credit history: If you are young, then your credit score won’t be very high since you don’t have any credit history. Therefore, you should apply for a no annual fee credit card to begin building a credit history.
- Carrying a balance: If you are carrying a balance, and paying interest, than any benefits from accumulating more miles/points is NOT worth it. Paying +20% in interest is not going to benefit you in the long run, trust me!
- Applying for a mortgage, auto loan, or refinancing: It’s usually not a good idea to apply for more credit cards if you are trying to secure a loan. The banks will count all liabilities against you, and opening up multiple credit cards is not going to help! Therefore, secure the loan first before racking up the miles/points.
My Personal Experience
When I first began the travel hacking game, my credit score was ~720, and now it’s 795 (with 7 mortgages)!
Back then I would always pay my bills on time, and I never carried a balance. I knew my credit score was pretty good, but it wasn’t helping me in any other meaningful way. Then, I discovered the magic of miles/points, and was able to leverage my high credit score! I didn’t have any trouble being approved for 5+ credit cards at a time. So if your score is >720, and you’re not applying for enough cards, then your credit score isn’t working for you with credit card sign-up bonuses.
Overall, the key to my credit score success is to keep my debt-to-credit low. This is how I can be approved for 50+ credit cards, and still have a high credit score of 795. In addition, I have a few credit cards with no annual fees that I’ve had since I was 18 years old, and they really help to balance out my average length of credit card accounts. Again, I will never cancel these credit cards.
But what about the credit cards with annual fees?
Typically, with most of my miles/points credit cards, I will cancel them after 11 months when the annual fee is due. Cancelling credit cards within 11 months will not affect your length of credit history. Why? Because it will have a small effect on the average length of all your credit card accounts. In addition, when I do cancel a credit card, I will make sure to transfer the credit limit to another credit card, which helps me to maintain my total available credit. Remember, the debt-to-credit ratio makes up 30% of your credit score!
- Pay your bills on time
- Never carry a balance
- Never cancel no fee credit cards
- And apply for multiple credit cards on the same day!
It’s an easy formula to follow, and my credit score continues to Rise! Plus, I get to travel in 1st Class, and stay in 5 Star Hotels!
If you ask me, that’s a really good DEAL!