In talking about points and cards every day I often find that I run out of time explaining the basic strategies to people new to the game. There is no one-size-fits-all credit card point strategy as everyone has different goals in mind when they want points. However, this suggested beginner’s strategy is mostly for people in their early-mid 20’s or even earlier that are just getting their first few relevant credit cards and are trying to establish more credit history while wanting to travel.
This strategy is mainly to build your credit while maximizing flexible bank points and minimizing annual fees. This does not at all mean you should not open up that American Airlines card with a 50K point bonus if you fly AA and have a reward destination already in mind. If that is the case then go for it and cancel the card later assuming your credit history is solid enough, which we will get into a bit more later on.
Most importantly before we get started, you MUST be able to pay off your credit cards each and every month. Paying just the minimum and drowning in credit card interest (debt) is the worst possible thing for you and your credit score at this time in your life. As your history builds up over the years and you pay everything on time with no late/interest fees, you should have no issue getting a mortgage or a larger loan later on in life as your credit score should be fairly excellent if you play by their rules and plus, they'll give you free trips via points for a good score.
The following card strategy is based on my own opinions and experience had I done everything perfectly the first time around (which I didn't). I highly recommend you look to see if you are prequalified for these cards before applying for them so you do not get a hard pull on your credit score and get rejected, which would lower your credit score for a short time. In addition, if you have any additional credit lines open before the cards below, that can only help your chances of your credit score being unaffected by this strategy and also getting approved for all of them in the first place. Now that the housekeeping is taken care of, here is the rundown:
1) Bank of America Travel Rewards (No Fee)
This is just to build credit history while giving you the option to save $200 on travel and no fees abroad. And plus, you’ll be rolling in points in no time so just calm down!
2) AMEX Everyday (during pulse period, No Fee)
You also will get 2x points at Supermarkets (up to $6k spend a year) so as you’re scrounging for money thanks to your new entry level job in the real world and cooking for each meal to save, you will be saving even more by getting points back on each trip to the grocery store which can be used down the line for a free round trip flight. If you use this card 20 times in a month, you also get 20% more points for a small, but nice, additional bonus each month on the 1x and 2x points. Make this your primary card once you upgrade from BofA (but leave the BofA card open for credit history).
3) Chase Freedom (during pulse period, No Fee)
You could go with this card next or the Sapphire depending on your plans but I recommend Freedom just to be conservative and credit friendly. This way you’ll have 3 (at minimum if you skip #0 from before) no annual fee credit lines open for the rest of your life that will be consistently helping your history and average lengths of account. Many people think Freedom is one of the worst cashback cards out there and quite honestly, they are kind of right but because many people do not know that the cashback you earn can be converted into points once you get Sapphire, they undervalue this card a ton.
You would open this card again during a pulse in order to get a greater bonus. It starts at $150 now and could go up to $300 assuming they follow the same doubling of the bonus during pulse periods that they did when the starting bonus was $100. This would equate to 30K points at most and with a low minimum spend to meet ($500 in 3 months) that might as well be free money just for signing up. In addition, any 5% cash back category (10% cash back now on Amazon!) that you use your card in each quarter essentially equates to 5x points towards your Sapphire + Freedom point balance up to $1,500 in spend in the category. Transferring points between accounts takes two seconds and incurs no fee whatsoever.
4) Chase Sapphire ($95 Annual Fee)
To start, you get 50K points now after $4K spend in 3 months and 2x points on ALL travel and dining so shift all spend from AMEX/Freedom to Sapphire for a few months to insure you achieve this bonus limit. Those 2x point bonuses mean Ubers, cabs, subways, trains, parking, restaurants, and bars are all double points. This card has a bit stricter of credit score limits so make sure you have at least a decent score and check the prequalify tool on Chase's site.
Once you achieve the Sapphire bonus spend limit and you combine it with your Freedom points, you should be close to 90K points in all which could easily get bumped up to 100K points if you use Sapphire on everything and Freedom on the 5x categories for another couple months. That’s a whole lot of points to play around with and redeem either with Chase directly for 1.25x on travel or for potentially better ratios (2x+ depending on reward) with their transfer partners (Hyatt, United, Singapore etc). You get a much better dollar value for your points if you transfer them to partners and you could find overlapping partners between Chase and AMEX like Singapore Airlines to have even more points in one location (they fly to Europe if SE Asia isn’t on your radar yet).
5) Wildcard!
This is when things start to get a bit more complicated. In my personal opinion, you’re ready to start churning points as you should have about 4-5 years of solid credit history at this point (minimum I hope) and the income to cover a new card’s bonus limit every 6 months or so. Basically, the AMEX and Chase cards I mentioned should have you in respectable position to get quite a few free flights recently so you can either open other AMEX cards (Everyday Preferred, Gold) to build up your points there or move to Citi (Premier) or anywhere else that fits your ideal trip itinerary. I would leave the aforementioned 4 cards open at all times along with any other no annual fee cards you collect along the way in order to continue to have respectable history and average account length.
Credit Score and Being Responsible
So at this point you’re probably thinking, “Great, I have the credit cards and the plan but I still don’t buy that this won’t hurt my credit”. I don’t blame you for thinking that and quite honestly, I have thought the same thing while reading tons of blog posts on the subject. However, the main things that make up a credit score according to FICO are length of credit history, payment history, amounts owed (utilization rate), and new credit (average length of account). This gets a bit boring but it's important, so pardon the finance talk, it's why I saved it for the end.
Credit History, Account Length, and Payment History
You are immediately at a disadvantage with anything related to history or length (you’re young) but also with utilization rate. History and length will come in time, which is especially why I emphasize No Annual Fee cards to start so you can leave the accounts open and increase your average account length even if you are not using them after you get the bonus and spend all the points. This is also why I suggest you never close your first few credit card accounts (unless it’s an unreasonable annual fee), otherwise all that history will go down the drain and will hurt your overall credit history start/length of account. This includes that random low end credit card that you opened on your 18th birthday for no real reason and have a $2k limit on but never use since every little bit helps.
If you choose to churn, I would not advise opening too many accounts at once or in a short amount of time yet just to be safe, but you could do 1 or 2 new cards each year period (6 month period at shortest) and then rotate in new ones, downgrading or cancelling annual fee cards to prevent losing money at the year mark (while still having at least a year account length if you cancel). Some cards will allow you to have a free FICO score (e.g. Slate, Citi Premier) check every so often which can be a great benefit if you want to check your score before applying for a new card to churn for points. If you see your score has taken a bigger hit than anticipated from opening too many cards then just take it easy for a bit and let your credit build and recover over time as you continue to pay off your cards in full and on time.
Utilization Rate
For your utilization rate, that will get better as you get more accounts with higher credit limits. The more credit you have available that you do NOT use, the better off you will be, as you will not have a lot of outstanding debt looming over your head that you might not be able to pay off. This shows credit bureaus that you know how to handle lots of credit and are not out of control with your spending habits. You're officially a "grown up" (or so they think), congratulations!
If you start churning points more seriously after going through with this strategy, just be wary of the new credit and average length of account aspect of your score. As long as you pay off all your accounts on time, don’t carry any balances, continue to build history/average length while having a low utilization ratio, you should be set. With that in mind, feel free to never pay for a flight again and churn points forever! Seriously though, churning has its intricacies so make sure to do even more research before you seriously churn points and obviously feel free to comment here with any questions and I'll do my best to answer them as there are way more advanced techniques out there compared to this beginner guide. I'm currently planning for a (mostly) free flight to Australia in 2016 now with points so by all means come along down under! It is free after all...
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