Ok I’ll let you into a secret – the way to rack up a mammoth balance in a frequent flyer program is not to take lots of flights! Crazy, isn’t it? Of course that does help but for those who travel a few times a year without the benefit of trans-Atlantic flights for business, there is another way. Travel credit cards are without doubt the best way to build a huge balance quickly however some people are wary of using them, for fear of getting into debt.
Is credit card travel hacking for me?
You can use the following little quiz, to find out if this strategy is likely to be suitable for you. Simply circle the tick or cross of any that applies to you.
|Are you using up 100% of your potential credit? I.e are your cards maxed out?||×|
|Do you regularly miss payments on loans or credit cards?||×|
|Do you max out your current credit cards?||×|
|Do you pay your mortgage and other bills on time?||√|
|Have you held your bank account for longer than 3 years?||√|
|Do you currently pay off your credit card debt in full each month?||√|
If you have circled any of the crosses, then this strategy might not be for you and I would urge you to focus your travel hacking strategies on non credit card ways to earn. It will take you longer but you can travel hack without credit cards in the UK (here’s how to travel hack without a credit card in the US too).
If, on the other hand, you have only circled ticks, you are disciplined enough to pay your bill in full and on time each month, not take on more commitments than you can handle and can manage multiple credit cards then this strategy is absolutely for you. If that all sounds a little ominous, don’t worry as the Travel Hack Team (Jackie, LeAnna and I) will be on hand to guide you through the process and show you strategies to help you along the way.
Credit card myths
Even though credit cards may be the best way to rack up a huge airline rewards balance, Jackie, LeAnna and I often hear other concerns raised about using credit cards, so let’s get those on the table and set your mind at ease.
Will multiple credit card applications impact my credit score?
In the UK, it is uncertain exactly what difference having multiple credit cards will make to your credit score as it all depends on how you manage your cards. The answer to this is thus yes and no. If you can answer yes to the following questions you will likely have a higher credit score (source: Moneymatchmaker).
- I have a cheque guarantee card
- I am a homeowner
- I am over 45
- I make credit card and loan repayments on time
- I have had my bank account for a long period
- I have enough self-control to avoid reckless spending
- I do not use 100% of my credit (I.e if you have maximum possible lending across your credit cards of £10,000 and you have a balance of £10,000, then you have used 100% of your credit).
For instance, I can answer yes to six of the seven (in case you were wondering, no. 3 is a no for me! No cheeky comments please….) and have an excellent credit score of 833 (you can find out your own credit score for free and without entering credit card details at Moneymatchmaker)
If you can’t answer yes to 4, 6 or 7, I would discourage you from adopting this strategy as there is a heightened chance that you will find your credit card application rejected and this will have a temporary negative impact on your credit score, nor do I wish to encourage people to spend what they can not pay off in full each month.
If you pay off your bills in full and on time each month and use only a small percentage of your credit, over time using credit cards will improve your credit score.
Should I cancel credit cards?
Although LeAnna of Economic Excursionist stresses that you should not cancel credit cards, for UK residents, I would argue the contrary. The best points to be had in the UK are the sign up bonuses, which unsurprisingly you can only get on sign up. Sometimes when you advise a company you are looking to cancel, they will offer you a points incentive to remain a customer but this is rarely as attractive as the sign up bonus (although it is less hassle for you).
In the UK, we do not have lots of credit card options to choose from so it is essential that you regularly cancel cards once you have banked the sign up bonus. I’ve just banked another 20,000 from the AMEX Gold card and am preparing to close the account.
This does mean I will lose the benefit of the lounge passes but I’ve recommended my husband for a card (for which I earn another 9,000 points) and he will earn 22,000 (an additional 2,000 thanks to being blessed by my presence in his life lol!) once we satisfy the minimum spending.
Those 22,000 points will all get transferred to our British Airways Executive Household account (note because cards are chip and pin these days, the cardholder does not have to be the one in possession of the card) and the only requirement is that a minimum of 1,000 points is transferred to your chosen program at any one time.
Beware, there are some who believe you may jeopardise any unused companion voucher on the British airways credit card if you cancel the card. Certainly the terms and conditions reference the need to pay for your flights using the credit card so it would pay to utilise the voucher before closing the account.
Also any AMEX membership points will be lost when you close the account so be sure to transfer these to your chosen airline first. Use the Credit card tracker which you can download here to keep track of when you open and close accounts as you will usually have to wait six months before reapplying. This will also allow you to keep track of your outstanding spend if you have multiple cards.
Will frequent applications hurt my credit score?
This is really an extension of the above question and MoneySavingExpert suggests this could have an adverse impact on your score, however the site also suggests that taking credit is good for building your score. This is just evidence of the mystery surrounding credit card scoring in the UK.
I would suggest that providing you pay cards in full and abide by the above rules, you should be fine although you may wish to defer credit card applications if you are about to apply for your first mortgage on your dream home! An additional safeguard is to rotate applications between you and you partner/spouse so that there is a greater time period between each of your applications. More on this in future posts…
I will go more into the detail for each card in next week’s post (otherwise it will take you until next week to read this!) but for now I’m going to give you an overview of the two main types of cards.
Branded Credit cards
These are cards offered by major card issuers but in conjunction with a specific company. For instance, British Airways offer two credit cards in conjunction with AMEX. All spend incurred on the cards contribute points directly to your British airways account (remember from the airline alliance infographic, British Airways are part of the Oneworld alliance).
Likewise Hilton HHonors and Starwood offer credit cards which earn points for you in those respective hotel reward programs. Generally points cannot be transferred to other airlines so if you opt for a British Airways credit card, you will be restricted to earning points with British Airways. Likewise if you opt for the Lufthansa card you will be restricted to earning points with Lufthansa.
The only exception is with some hotel programs which allow you to transfer points to a frequent flyer program although the reverse is not usually possible.
Non branded credit cards
These are largely offered by AMEX and allow you to earn AMEX membership points albeit at a lower rate than some of the branded credit cards. The benefit of these cards is that you have absolute flexibility when it comes to airline programs, as points can be transferred to a number of different frequent flyer programs. If you do not wish to commit to one specific airline therefore, these are a good option.
I will go into much greater detail next week about all the options, however if you simply want to jump in and start collecting, I recommend these options for the attractive sign up bonuses.
Branded credit cards – British Airways American Express Premium Plus Card
The British Airways Premium Credit Card rewards your application with 25,000 bonus Avios if you sign up before 15 June and meet the £3,000 spending target within three months (if you use my referral link, you will earn an extra 1,000 on top!).
It also offers one of the most generous earnings rate of three Avios for every £1 spent with BA and 1.5 Avios for every £1 spent elsewhere. You earn a companion voucher (valid for 24 months) each year you hold the card and reach the minimum spend threshold of £10,000.
Pro: High earnings rate
Con: whopping annual card fee of £195 which has increased from £150 recently.
Despite the annual fee, this is the best travel credit card in the UK, in my humble opinion, as what I save on flights more than covers the cost of the annual fee. For instance, I booked business class flights to Montreal for just £1048.06, a saving of over £5,000 on the business class fare and £332 less than the economy fare.
The standard (or blue version) of the British Airways card is ideal for those who are unwilling to pay an annual fee or who want a back up option for a spouse. It has a lower earnings rate of one AVIOS per £1 and only offers a sign up bonus of 9,000 Avios.
It does offer a companion voucher but you must spend £20,000 per annum to secure it and it is only valid for 12 months. This may make it more difficult to redeem if you are inflexible on dates and destinations.
Pro: no annual fee
Con: lower earnings rate and the high level of spending needed to qualify for the companion voucher
Non branded credit cards – The American Express Gold Card
The American Express Gold card offers 20,000 AMEX membership points (if you use my AMEX Gold card, you earn an additional 2,000 points) after spending £2,000 in 2 months following your application.
You also earn 1 membership point per £1 and can convert these into British Airways Avios at a rate of 1:1.
Pro: high sign up bonus and ability to convert into points with many frequent flyer schemes
Con: no companion voucher and the need to manually transfer points to your chosen program.
Finally, at the risk of sounding like I am repeating myself (I promise, I have not lost my marbles, but it is so important you don’t get into financial difficulty in your quest to travel hack the world), there are a few rules to follow if you are using your credit cards to boost your balance.
Eight Golden Rules for using your Credit Cards
Rule No. 1 – Divert current spending onto credit cards
I almost never pay with a debit card and instead use my credit card as long as there are no extra charges for doing so. This includes all my food shopping, miscellaneous household purchases, drinks and meals where possible. You may even be able to pay for some of your household bills using credit cards, although this is more common in the USA.
I religiously transfer the money from my current account each week to cover my spend although you may choose to do this less often. Remember that point I made earlier about paying off your balance IN FULL and ON TIME each month.
Rule No. 2 – Maximise double dip opportunities
This is a situation where you can use a card to earn miles and another method at the same time to earn even more points.
For instance, using your American Express credit card in Tesco will get you between 1 and 1.5 rewards points per pound of spend. In addition, you earn Tesco club card points at the rate of 1 point per £1 in store. £250 of spend in Tesco using an AMEX Gold card would earn you 250 AVIOS from AMEX and one £2.50 voucher worth 600 AVIOS from Tesco (or 625 Virgin Atlantic Flying Club miles). Your £250 spend has now earned you 850 AVIOS, a rate of 3.4 AVIOS per £1.
Likewise using your credit card in the AVIOS store allows you to earn up to 12 points per pound, plus the points from your credit card. For example, assuming you spend £100 in a store with an earnings rate of 12 and you paid using an American Express card earning 1 AVIOS per £1 spend, that £100 spend would earned you 1,300 AVIOS, a whopping accumulation rate of 13 AVIOS per £1 spend!!
Rule No. 3 – Loyalty does not pay!
Don’t stay loyal to the same card. It pays to switch cards regularly to take advantage of those sign up offers. If you sign up for a British Airways American Express Premium Credit Card account you get 25,000 bonus AVIOS (or 26,000 if you are using my link) once you meet the spending criteria. If you then cancel the card and re-apply after a further 6 months, you can earn another bonus.
Don’t worry, this planner will help you keep track and keep your eyes peeled for our infographic (COMING SOON!) which will provide a credit card timeline for you to follow to earn the maximum points.
Rule No. 4 – Do not be deterred by cards with an annual fee
As you have already seen, a credit card can carry a hefty annual charge. However, do not let this deter you as the accumulation rates tend to be better on these cards. They also offer other valuable benefits which may more than compensate for the fee.
Rule No. 5 – Consider multiple options
You can maximise your points and options by securing more than one card but be mindful of the bonus criteria. If you take out more than one card and need to spend a certain amount on each within a set period, you might miss out on bonus points if you overstretch yourself.
You may even be better delaying signing up for a card until a time you know you have a larger outlay to make, or staggering applications to cards. We will show you how later in the challenge!
BEWARE you cannot redeem points in conjunction with a companion voucher on BA partner airlines so be sure to check they offer the route you want before dedicating time and effort to targeting the companion voucher.
Rule No. 6 – Pay off your bill in full each month
This is soooo important. Do not spend more than you can afford to pay off each month, don’t buy anything you weren’t planning to buy – the idea is to change your spending habits not to help you develop a spending problem!
Also always make payment by the required date to avoid late payment fees
Rule No.7 – Seek Credit Cards which Offer Companion Vouchers
To maximise your chance of flying business for less than the cost of economy, seek credit cards which offer a companion voucher. Beware though, all Airline Companion Vouchers are not created equal!
Most do not allow you to use them in conjunction with miles/points or for business class. The British Airways scheme is the only one which allows you to redeem for business class flights using both your companion voucher and AVIOS.
Rule No.8 – Refer friends and family
Many cards offer the option to earn a referral bonus for friends and family. Both AMEX Gold and British Airway Premium credit cards offer a 9,000 bonus for the referrer. Your referral points are capped at 90,000 for the Gold card (ten friends) and 45,000 (five friends obviously!) for the British Airways Card.
Your challenge tasks this week
So there you have it; if you can’t be bothered waiting for next week and just want to jump in and get started take your pick from one of these three cards. Just remember to download the Credit card tracker download the tracker and make a note of the key information for your records.
Here’s a helpful summary of your tasks for the week.
- Download the Credit card tracker
- Make a note of any existing cards you may have
- Add any additional cards you decide to apply for
- Come and chat about your progress in the Facebook group. We would love to know how you are getting on
Have your say
If you have any questions, comments or advice feel free to drop these into the comments below. I’d love to hear from you.