Disclaimer…This post is long…and it is pretty much all words.  So put your reading hat on if you want to learn about the basics of credit card sign up bonuses.  I’ll include a random picture or two for motivation.

Disclaimer #2…Proceed at your own risk because there is some risk to this – though minimal if done right.  Further, know your situation.  Looking to buy a house within a year? Move a little slower with this than you would otherwise.  Planning on putting 5% down on the maximum loan you can qualify for on that house?  Reconsider your need to sign up for credit cards because you’re likely to be scrutinized far more than someone who puts down 20% on a loan that they easily qualify for.

What is the one easiest way to earn tons of miles/points in a very short time?

It’s not actually flying all that much, nor is spending on your American Express.

Signing up for credit cards is the correct answer.  I went through my latest round of applications a week ago (as of writing this).  I signed up for 5 credit cards; Alyce signed up for 4.  This was a little higher than our typical application round, but it had been a little longer than usual since our last applications.

So, in 30 minutes of “work” on a Saturday morning, what did we get (combined):

200,000 American Airlines Miles

150,000 American Express Membership Reward Points

50,000 United Miles

50,000 Ultimate Reward Points

Do the math…That’s 450,000 points.  In one morning.  I value those points at about $.02 a piece, so that works out to a cool $9000 of value from one day of signing up for credit cards.  Or in terms of flights, that’s roughly equivalent to 4 roundtrip business class tickets to Europe, Asia, South America or even Australia (in some circumstances).

Full disclosure: I don’t have those points yet.  They are only placed in your account when you meet minimum spending requirements.  Also, I actually had to sign up for our second American Airlines cards a couple days later because of Citi sign up rules.

Sound too good to be true?  I thought so too at first, but this is one of those very rare cases where something that sounds too good to be true is not.

But do you know what you’re doing to your credit….

Yes, I actually have a very good idea – probably better than whoever is asking that question.  Let me help you down from that unusually tall horse of yours…  I monitor Alyce and I’s credit on a monthly basis and have a very good understanding of what affects credit scores…and I’ve found it isn’t always what people say it is.

Anyway, both of our credit scores are very good.  Mine is a little lower (~10-20 points) than when I started signing up for credit cards.  Alyce’s is about 50-60 points higher thanks to the monitoring.  We found some stupid unpaid medical bill (like $20) that we had no idea existed when we started monitoring our credit, which we never would have known about otherwise.  Paying this off immediately increased Alyce’s credit score by a large amount.

That doesn’t satisfy you….How about this.  We refinanced our house two weeks ago and were complimented on our excellent credit (qualifying for the best interest rates).  Prior to that, we had each signed up for 20-25 credit cards over the previous 2 years.  Plus, they keep giving us more credit cards.

So what does affect your credit score?  In my experience, the big factors are average age of accounts, % of credit used per card, number of recently opened new accounts, and inquiries (to a small degree).

This naturally goes on top of the usual things like payment history and % of overall credit used.  If you have trouble paying credit cards or are using a large overall portion of your credit, quit reading now and don’t even consider signing up for more credit cards.

How do we combat these above factors?  I’ll look at them one by one.

Average Age of Accounts – This one can be very important/not a big deal depending on your existing accounts.  That is, if you’re older with more established credit, you can add a bunch of cards and not affect your average age of accounts too much.  It is the exact opposite if you’re younger with minimal credit history.

Either way, there are techniques to minimize the number of new accounts that appear on your credit report.  The first one is the biggest and easiest, yet is rarely talked about….Don’t add authorized users to new cards unless absolutely necessary.  Authorized User cards will report on the authorized user’s credit report.

We can also flip this to help you out.  If someone with a long open credit card wants to add you as an authorized user, it can up your average age of accounts.

Another tip is to take advantage of American Express’s age of accounts policy.  AMEX will back date every new card you receive from them to your oldest card.  In simple terms, if you have one AMEX card with a 10 year history and then add 2 new Amex cards you applied for, your credit report will now show 3 cards with 10 year histories.  All other banks will report the new cards as brand new.

Business accounts are typically not reported on your personal credit report.  Don’t have a business?  Create a plausible business.  I have a business card to keep my expenses separate for any legal side business I do; same for Alyce for any side nursing jobs.  Just be honest on you application about the business – annual revenue (I list ours as $0), years in business, employees, etc.  Your business tax ID is your Social Security Number; the name of your business is [your name].

Number of recently opened accounts – Techniques for minimizing recently opened credit card accounts that appear on your credit report are pretty much the exact same as the techniques for maximizing the average age of your accounts.

Inquiries (aka Hard Pulls) – Much is made about credit report inquiries, but I think it is overblown.  Yes, each inquiry will ding your credit score a couple points, but each inquiry will only affect your credit score for a couple months.

Second, you can spread your inquiries around.  What that means is that each bank pulls from a different report, so by spreading your inquiries around you can make it appear as if there is only one recent inquiry on each report.  For example in Louisiana – Amex pulls from Experian, Chase pulls from Equifax, and US Bank pulls from TransUnion.  Inquiries only show up on the report that was pulled, so you could apply for cards from Amex/Chase/US Bank and only have one new inquiry on each credit report.

% of credit used per card – I don’t see many people mention this often, but I’ve seen it knock my score 15-20 points one way or the other personally.  Plus, it is very easy to miss.

Say you have an American Express with “no limit” – how is that reported to the credit bureaus?  Your limit will be the highest statement balance over the last 6-12 months.  Maybe you still don’t care because you pay off each card in full each month after the statement posts – doesn’t matter.

What is reported to the credit bureau is the statement balance.  You may pay it in full and not pay any interest, but nothing is updated until your next statement.  So if you charge roughly the same amount on your Amex every month and then pay it in full after the statement, you’ll always have one account showing a usage of 90%+ of available credit.  This will be reported as negative information on your credit report.

In a similar vein, having a balance on many different cards will be viewed negatively on your credit report.

Combatting these problem is easy, but requires you to be proactive.  If you know you will be applying for credit cards/a mortgage/whatever where your credit report will be pulled, be sure to pay off your credit card before your statement posts.

Monitoring your Credit

I highly recommend anyone considering applying for credit cards monitor your credit.  Citi has a special deal (that has been going on for years now) for $5 a month credit monitoring, which includes a new credit report from all 3 bureaus each month.  It is a great deal; here is the link:

http://www.identitymonitor.citi.com/index.aspx?source=IMN00291

Organization

So, you’re all set to apply for some credit cards – what next?  Get organized.  Create a spreadsheet to track your progress.  I like to keep track of Bank & Card, Sign Up date, Sign up bonus, spending required, time to meet spending requirements, whether that requirement has been met, if the bonus points have posted, the date the card was cancelled (if it has been), the credit bureau that was pulled when applying, and any other notes.

Do it from the beginning, and you’ll be happy that you did.

You should also probably have a sheet for all of your frequent flyer accounts, etc.

Finally, always check every account at least once a month – even if you are pretty sure that you did not spend on that card.  Some small recurring transaction could post, or an annual fee could come due, or anything could happen.  Missing some small $10 charge could rack up $100’s of fees and could hurt your credit score worse than all the applications.  So check your credit cards balances every month.  And I also like to set up the payment due e-mail reminders.

One last tool (in addition to your spreadsheet) to help you stay organized is Award Wallet.  This site tracks your points/accounts in one place and is very convenient.  But again, use it as a supplement to your personal tracking – not a replacement.

Application Cadence

It is best to not just apply for credit cards without any pattern/regularity.  This is by no means an unbreakable rule, but I try to keep to it more times than not.

I like to apply for 3-4 cards every 3-4 months, and usually one or two of those cards are business cards.  This gives time for the inquiries to work their way off of your score between applications, and it helps to keep you from over applying.

Again, this is not a set rule.  If there is a great offer available, go for it.  And if you think that is too much, you can always dial it back.

Selecting Cards to Apply for

Time to apply…What should I get?  Uhhhh, that’s a constantly changing answer.  Offers come and go, and you want to try to get the best possible offer because you typically can’t get the same bonus again (or at least for a couple years).

You also need to consider that you should have a good mix of personal and business cards from different banks.  If you’re feeling aggressive and want to apply for 4 cards, don’t apply for two from Citi and two from American Express because that would put 4 inquiries on your Experian report (in Louisiana).  Sidebar, each bank pulls from different reports in different states.  This is one reason to keep track of your pulls.  Another resource is this link to a credit pulls database.

Back to the bonuses…message boards and blogs are the best spot to find the latest and greatest offers.  Flyertalk (and particularly this thread) keeps track of the latest credit card offers.

On to blogs…In the last couple of years, everyone and their brother has started a credit card blog.  Be wary of many of them.  They get paid for people to sign up using their credit card links, and – won’t you know it – they’ll put their own links up and not include other better links.  Shocking…and some are really bad.  That said, a couple have been around for a long time and give good advice regardless of whether their link is being used.  They also have great trip reports.

Ben at One Mile at a Time has traveled plenty of places on plenty of different airlines.  He does great trip reports.  I’ve followed him since before he had affiliate links, and I think he gives good trustworthy advice.  I’ve even e-mailed with him some.  He has a latest best credit card offers list on his blog.

Gary at View from the Wing is one of the best overall frequent traveler blogs.  He’s been writing about his travels long before credit card affiliate links became the hot thing and is another one I trust to provide unbiased advice.  He also has a best credit card offers link.

Brad at On Regional First at Upgrd doesn’t post on credit cards, but he does write very good trip reports on some more off the beaten path places (compared to many other travel bloggers).  He is also a very friendly guy; we have e-mailed back and forth a good bit.

Jen at Deals We Like is another blog that also features credit cards, but she goes way more into deals and saving money on all sorts of things than many other blogs…and I mean way in to it.  A lot of the deals are too much for me to keep track of, but if you like to save on everything follow her.

One final blog I’ll mention is Jason at OnlineTravelReview.  He doesn’t post quite as much as some of the other travel bloggers and generally provides a different (perhaps more cynical) perspective…often chiding the bloggers who post 8000 posts on every single credit card sign up and why it is the bestest ever.

He actually offers a free Credit Card Consulting Service whereby he helps you pick the best credit cards to sign up for.  The only payment he gets is you using his link, if one is available.  This is something that is probably worth taking advantage of if you don’t want to do the research yourself.

A brief sidebar on keeping track of blogs – Look in to a blog reader.  This is a site that takes all the blogs you like to read and puts them in one location in a user friendly format.  Google Reader was my favorite, but it has been shut down [tears…].  Feedly is what I’m currently using.  It seems good, but I’m still feeling it out.  Newsblur is another one worth looking in to.

Approval/Reconsideration

You’ve been approved for your credit cards…but your job is not over.  All credit cards come with some sort of spending requirement – from a small of “first purchase” to as high as $10,000 and more.

Be sure to track this and meet it, or your credit card applications will be all for naught.  Also, don’t forget to make sure that the points actually post.  I’ve never had a problem with that, but I’ve read of others who have.

What if the unthinkable happens and you get denied?  Don’t give up just yet.  Most banks will reconsider your application, and some banks are very good about overturning a denial.  There is plenty written on the internet about credit card reconsideration – here are a couple links link1 link 2.

This brings me to another point – learn the term “hang up, call again.”  You will usually get different answers from different agents on many things.  If you don’t like what you hear, hang up and call again.  This applies to credit cards, airlines (whose agents rarely actually know their own rules), etc.

Cancelling Cards

When should you cancel these cards?  I think it is best to wait at least a couple months after your points have posted.  Many people suggest waiting a minimum of 6 months after applying; I’d agree with that.  Really for most banks, I wait until the annual fee comes do and see if I can get that waived (or get free miles/points instead).

Some people will recommend never cancelling your cards, but instead waiting to offer to close them in a reconsideration call.  I disagree with this.  Cancelling cards ahead of time (and thus reducing your credit with a specific bank) can help you avoid having to be reconsidered in the first place.

The only other consideration in whether or not to cancel cards is getting the bonus again – aka churning.

Churning

This is more of an advanced topic, and –even worse – it seems to be constantly changing.  But basically, this is how often can you get the bonus for a specific card.

American Express is the only one with a specific, well defined rule.  They will not give you a sign up bonus for a card if you have held any card from that same point system in the previous year.  For example, if you have a personal amex gold, you cannot get another personal Membership Rewards card sign up bonus until one year after you have cancelled your current card.

The other banks are mostly based on other people’s experience.  But here are some general guidelines:

Chase is allegedly once every two years…I’m not really sure as I’ve never churned a Chase card…they just have so many sign up options.

Citi is…all over the place.  For a long time, you could sign up for a new card every 30 days, then they cut that out.  Then it was 18-24 months.  Now, there is an American Airlines card that can be churned as frequently as you like – though that will probably end soon.

Barclay’s…You can typically get multiple of the same card.  Alyce and I each have two US Airways cards a piece.

My Favorite Points/Miles

Some points are better than others, but at the end of the day they are all better than nothing.

Starwood Preferred Guests Starpoints are probably my favorite overall point.  They can be transferred to most airlines at a 1:1.25 ratio and are pretty valuable for hotel redemptions as well.  If you were to only pick one card and put all spending on it, I’d probably recommend a Starwood Amex.

American Airlines miles are probably my next favorite at the moment (or are tied with Chase Ultimate Rewards).  I’ve had more luck finding award availability on international premium cabin awards with One World flights than any other alliance lately, so that is why I am high on AA miles.  I’ll include US Airway here, as they’ll be merging with AA in the near future. (At least that was the case when I typed this out…)

Next (or tied with AA) is Ultimate Rewards from Chase and United Miles.  Ultimate Rewards transfers to United, Hyatt, and British Airways and some others.  United is Star Alliance and has a good award chart.  British Airways are good for some awards as their chart is distance based.  Hyatt has some real winners for redeeming points in their hotel chain.

After that is American Express Membership Rewards.  These don’t have a single partner that I value as highly as American Airlines, United, or US Airways; but they do transfer to many airlines and can be very useful if you are willing to pay some fuel surcharges.

There are plenty others that are ok…Delta is not particularly good.  They are commonly referred to ‘Sky Pesos” due to their difficulty to use.  But even Sky Pesos have a couple sweet spots – to Tahiti and to Australia in business class.  Hilton is another one that used to be much better.  About 6 months ago they tripled the points required for their best properties.

The final group I’ll lump together are cash equivalent points.  These “miles” are worth a fixed cash value.  They have their uses, but I typically prefer actual miles.  Still, I have signed up for some cash equivalent cards, and they have occasionally proved valuable.

Final Words of Caution

Be careful.  As I mentioned previously, if you don’t pay off your credit cards in full, quit reading.  This is not for you.  Paying interest on credit cards will cancel out any benefit you get otherwise.  Digging yourself into debt will be worse.  To put it in perspective, Alyce and I’s combined available credit could purchase our house.  If that is too much for you to handle, then don’t tempt yourself.

Also, if you can’t stay organized, strongly reconsider your need to sign up for any credit cards.