Contrary to conventional wisdom, you can play the points and miles game without causing harm to your credit score or finances.
Sticking to a few simple guidelines will enable you to enjoy free trips while avoiding long-term consequences like high credit card balances and lower credit scores.
In this article, we’ll explore the relationship between credit cards and credit scores, talk about the impact of travel hacking on your credit score, and outline key tips for responsible travel hacking.
The Relationship Between Credit Cards and Credit Scores
Your credit score is a three-digit number that indicates your creditworthiness and helps lenders evaluate your risk as a borrower. The five factors that impact your credit score are:
- Payment history (35%): your record of paying your past/existing debts on time.
- Credit utilization (30%): the debt you currently carry as a percentage of your available credit.
- Length of credit history (15%): the time each account on your credit report has existed.
- New credit (10%): the number of new accounts you’ve opened.
- Types of credit in use (10%): the mix of different types of credit on your report
Make sure to monitor your credit score regularly and to take steps to improve it if necessary. Several free credit score apps can help you track your score and provide personalized recommendations for improving it.
How Travel Hacking Can Improve (Or Hurt) Your Credit Score
Applying for credit cards is a main aspect of travel hacking (because that’s how you can score the biggest one-time points and miles bonuses), and doing so will affect your credit score. But what many people don’t realize is that following the best practices listed below can actually help your credit score rather than hurt it.
- Pay your balance in full every month using auto-pay to avoid missing payments.
- Keep your credit utilization to less than 30% by aiming for low balances on your credit cards.
- Space out new credit card applications by at least two or three months each.
- Start with cards you plan to keep long-term and avoid high annual fees you don’t want to sustain.
Looking at these best practices from the reverse angle is just as helpful. Specifically, if someone takes up travel hacking and their score declines, it’s likely due to one or more of the following reasons:
- Late or missed payments.
- High credit card balances and high credit utilization.
- Applying for too many credit cards in a short period.
- Closing multiple cards at once, which reduces your overall available credit and shortens your credit history.
- Using credit cards with high annual fees you can’t sustain.
Choosing the Right Travel Credit Card as a Beginner
Here are some helpful reminders for selecting your first travel credit card:
- Look for a low annual fee. When starting, aim to sign up for a credit card you’ll want to keep long-term. This means being able to afford the annual fee in the first year and subsequent years. This will help improve the length of your credit history, which is an important factor in your credit score.
- Consider the minimum required spend. Many credit cards offer signup bonuses when you reach a minimum spending requirement — for example, 50,000 points after spending $5,000 in three months. Before you choose a card, make sure you can hit that minimum spend without breaking your budget.
- Know what you want to use the rewards for. When choosing a travel credit card, it’s important to have a goal. Do you want to earn miles for a specific airline, or do you want to have more flexible rewards that you can use for various travel expenses? Having a goal in mind can help you choose the right card for your needs.
- Check the required credit score before applying. Your credit score will play a significant role in which credit cards you’re eligible for. Before applying for a card, check your credit score and ensure you’re looking at cards within your range. Most credit card companies will have recommended credit score ranges for those likely to get accepted.
Next Steps
After considering these factors, you’re well on your way to making an informed decision about your first travel hacking credit card. To find the perfect card for you, check out our comprehensive guide on the best beginner cards for travel hacking.
How to Avoid Common Travel Hacking Mistakes
Credit score aside, there are other considerations to remember when travel hacking.
Here are some concepts to keep in mind:
- Budgeting. Travel hacking can help you cover specific travel-related expenses, such as airfare and hotel stays. However, other costs, like meals and activities, can add up quickly. Make sure to set a travel budget and adhere to it, accounting for all expenses, even when using points to cover a significant portion of your trip. To learn more about using your points, see our articles on booking airfare with points and booking hotel stays with points.
- Avoiding high-interest debt. Carrying a balance is not recommended. The high interest rates associated with credit cards can quickly negate any rewards earned, making your travel cost more in the long run.
- Planning for emergencies. Travel can be unpredictable, so it’s crucial to have an emergency fund to cover unexpected expenses. This can help prevent you from relying on debt in a pinch.
- Being patient. It can take time to earn enough rewards to cover the cost of a trip, so it’s important to be patient. Stick to your budget and you’ll eventually get there.
Responsible Travel Hacking FAQs
Mistakes to avoid when traveling hacking include overspending to meet minimum spend requirements, carrying a balance on your credit card, and simultaneously applying for too many credit cards. Best practices are to have a budget, pay off your balances in full each month, and space out credit card applications.
To protect your credit score, pay your balance in full using auto-pay to avoid missing payments, keep your credit utilization below 30% by maintaining low balances on your credit cards, and space out new credit card applications by at least two or three months.
Applying for several credit cards in a short period can temporarily lower your credit score due to multiple hard inquiries on your credit report. I prefer to space out credit card applications to minimize the impact on my score by at least two to three months.
Closing a credit card account can negatively impact your credit score by reducing your available credit and potentially shortening your credit history. To maintain a healthy credit score, keep long-standing accounts open and avoid closing multiple cards at once.
The Bottom Line on Responsible Travel Hacking
You can travel hack without causing harm to your credit score and finances.
To ensure that you can enjoy multiple trips while avoiding long-term financial consequences:
- Pay your balance in full using auto-pay to avoid missing payments.
- Keep your credit utilization to less than 30% by aiming for low balances on your credit cards.
- Space out new credit card applications by at least two or three months.
Choosing the right credit cards is also essential for helping you increase your score long-term. When choosing your first card, look for a low annual fee, consider the minimum spend, know what rewards you want to use, and check the required credit score before applying.
Next Steps
In the next step of our travel hacking guide, we’ll dive into the best ways to earn points and miles so you can begin your journey to your next great travel adventure.
