April 14, 2011 (Hilton Head, SC) – Rick Ingersoll, the frugal travel expert who authors the popular “Frugal Travel Guy” blog, is the first to admit that the biggest and best frequent flier mile offers come from credit card companies.
But are they really the right offers for you? Are the rewards that come with applying for them really worth the effect on your credit score?
Ingersoll spent his pre-retirement years as a mortgage banker and personal finance consultant. He knows a thing or two about credit as well as frugal travel. And he offers some sage advice on knowing which rewards offers to accept and which ones to reject.
“Credit card offers come from numerous sources,” Ingersoll said. “Some are generated from purchased email lists and some from past relationships you’ve had with banks, retail stores, or travel related companies. Some of them even suggest that you’ve been pre-approved. That’s not really the case.”
You may have seemed to be eligible to the offering firm at the time they generated the mailing list, Ingersoll said, but be assured they will check your credit again if you go through with the application.
“Every time your credit is checked by a credit card issuer a hard inquiry is done and reported on your credit report,” he said. “It can negatively affect your credit score by two to five points and will remain on your credit report for two years. Don’t indiscriminately apply for offers you really don’t want.”
Ingersoll said he always looks for offers that provide the following: (1) Clear and printed information on the terms and conditions of the offer, (2) the particular size of the sign up bonus and what you must do to earn the bonus, and (3) proof that the sign up bonus is worth considerably more than the annual fee charged.
“As a travel freak, I want to know up front how many miles or points I’m going to earn,” he said. “If I can’t print the terms, I don’t believe the terms.”
As for the size of the sign-up bonus: “If a card offers me 100,000 airline miles if I complete $10,000 of spending on the credit card in 30 days, I’m not going to take that offer,” he said. “I’m not sure I can meet those terms and conditions in such a short time period. I am more apt to apply for cards that have bonuses awarded on ‘first purchase’ or a more reasonable minimum spend with a reasonable time frame, say 90 or 120 days. Remember, you must be able to prove you met the sign up bonus requirements if something goes wrong on the issuer’s end of the deal.”
Is the sign-up bonus worth the annual fee? “A one-night free hotel stay doesn’t really excite me as a sign up bonus, particularly if there is an annual fee for the card,” he said. “That’s not much of an incentive to my mind. I typically look for a minimum value of $500 or more in sign up bonus before I’ll apply for a credit card. I value airline miles at 1.5 to 2 cents each and hotel points at roughly 1 penny each except Starwood Preferred Guest (SPG) points, which I value at 2.5 cents each. It takes a sign up offer of 25,000 airline miles or more before I consider the offer worthwhile.”
Insisting that a person’s credit is one of his or her most important assets, he adds, “Each application negatively affects your credit score, so you want to get the biggest bang for your application.”
What if you are not going to pay off your card balances in full each and every month? “Then applying for credit cards is not for you, no matter how big the frequent flier mile reward may be,” he said. “The interest expense and possibility of late fees will eat up any potential gain in a hurry.”
For the right individual, applying for credit cards for their sign-up bonuses can have its financial benefits, especially for frugal travel hackers who can amass thousands — even millions — of miles and points this way, Ingersoll said.
“But you must be aware of the pitfalls as well,” he added. “Discipline and a plan of attack are musts for successful card churning.”
For more information and advice on frugal travel, visit http://frugaltravelguy.com.
About The Frugal Travel Guy:
Rick Ingersoll is the author of The Frugal Travel Guy Blog, which is read around the world and averages 5000 views per day, and The Frugal Travel Guy Handbook. He is constantly on the lookout for the best credit card and debit card sign-up bonuses. He posts travel tips daily on debit and credit card deals and on other interesting promotions with the goal of reducing his readers’ travel costs today and for the rest of their lives. He is also available for seminars and speaking engagements. A retired mortgage banker, Ingersoll and his wife live in Hilton Head Island, SC, and Traverse City, MI, when they’re not traveling the globe.