Applying for credit cards and banking the miles or points sign up bonuses is the best way to build up and maintain mileage balances. If you get really into it (like I have), eventually, you need to come up with a balanced strategy to go about applying for cards in as efficient a way as possible. Over the next few posts I’ll be outlining some of the thinking that governs what cards I apply for and why. Before that, though, I thought I’d review some of the basics you need to consider before applying for credit cards.
1. Pay off your credit card bills in full every month
Honestly, if you aren’t fiscally solvent enough to do this – don’t even bother. The money you lose to interest pretty much washes out any miles or points you can earn. So any credit card application strategy needs to start here – be sure you can afford what you are spending on your credit cards.
2. Proper use of your credit will cause little to no damage to your credit score
Yes, there are short term dings on your credit report, but as I’ve outlined elsewhere, in general, you can keep a good credit score while applying for credit cards. As long as you have a proper strategy, you shouldn’t take too much of a credit hit, if at all.
3. There are three different credit bureaus
Another important thing to remember is there are three different credit bureaus, different banks draw from different bureaus, and thus when you apply for a particular card your credit may be affected on one report but not another. This comes into play when you are applying for multiple cards at once – if you are applying for cards from different banks, the odds of them drawing on different bureaus (and thus spreading out the hits to your credit) increases, lowering the effect of potential dings on your credit score.
4. Credit pulls within the last 90 days have the greatest effect on your score
Every time you apply for credit, a bank will “pull” your credit information (a credit inquiry). This shows up on your report and results in a lowering of your score, or “ding.” After 90 days, the effect is lessened greatly, and after 2 years, the credit pull will fall completely off of your report.
5. Earning sign up bonuses often demands minimum spending requirements
For almost all credit card sign up bonuses, you need to spend a certain amount of money on the card before they’ll give you your bonus. Thus, you might need to spend $1000 before they’ll give you 50,000 miles. It’s important to know how much spending you need to do to hit your sign up bonuses, because if you need to stretch beyond what you would normally spend, it could hurt you financially.
Final Thoughts
This is just a brief introduction to the concept of a credit card application strategy. In the next few posts, I’ll talk about past credit card applications I’ve had, how to come up with an application strategy, and what I’m looking towards for the future. Stay tuned!