Points and Miles 101
If you want to learn how to travel for nearly free using credit card points and miles, you are in luck! This Points and Miles 101 will help you understand the power of credit card points and how to get started.
Credit Scores and Foundations of Credit
You can’t have a points and miles 101 guide without talking about credit scores. One of the main reasons people are hesitant to get into the points and miles hobby is because they are scared opening credit cards will negatively impact their credit score. While this is possible, many of the people I know have actually had a positive change to their credit score after opening more credit cards.
Most people don’t know what actually makes up a credit score (I didn’t before I started in this hobby). The below graph is a high level view of the 5 things that make up a credit score.
A few key things to know about this:
- Opening up a new credit card CAN cause a slight dip to your credit score. I have personally seen about 5-10 point declines. This usually goes back up to where it was at in a short amount of time (within about 1-2 months). Since new credit is only 10% of what makes up a credit score, this impact is usually minimal.
- Credit utilization is a HUGE part of your credit score. This is the percentage of credit that you have that you are actually using.
- If you have $1,000 worth of credit and you have $100 in charges, you have 10% credit utilization.
- This is where getting more credit can actually significantly help your credit score! A new card can increase the amount of available credit you have and thus reduce your credit utilization.
Checking your credit score is something you should be able to do regularly. There are 3 major bureaus: Equifax, Experian and TransUnion. You can create free accounts with each bureau. Your credit score will vary between these 3 – sometimes drastically! I personally check mine via Credit Karma occasionally and don’t stress about it too much.
The Five Most Important Rules of Credit Cards
- ALWAYS pay your statements in full and on time. If you are paying interest on credit cards, it will easily cost way more than the benefits of travel points and miles.
- Don’t cancel your oldest credit card. For my oldest card I have a small monthly recurring charge that goes on it to keep it active and I have auto pay set up on it (banks can close cards you don’t regularly use). This helps with the ‘Length of Credit History’ aspect of your credit score.
- Do NOT cancel a card until it has been over a year since you’ve opened it. When you sign up for a card you commit to it for a year – canceling before them can damage your reputation with that bank.
- Space out how often you open a card – many people recommend at least 90 days between cards. This is a little more situation dependent, but 90 days is pretty safe.
- Don’t spend more than you are comfortable spending. If you wouldn’t be spending the money anyway, don’t spend it just to hit a sign up bonus.
Credit Card Annual Fees + Benefits
Annual fees are not always bad. The biggest thing to consider is the value you are getting from that card and if that outweighs the cost of the annual fee on the card.
For example, the number one travel card I recommend to people is the Chase Sapphire Preferred. This has a $95 annual fee. It may seem silly to pay $95 for a credit card when there are plenty out there with no annual fee. However, there are a TON of benefits to this card including a $50 annual hotel credit, travel insurance and bonus categories to earn even more points.
Plus, when you sign up for this card, you’ll receive 75,000 points if you spend $5,000 in the first 3 months of having the card. That 75,000 points is worth $750 at a minimum – but if you transfer the points it can be worth $1500+!! That value is definitely worth the annual fee in my mind.
There are cards with extremely high annual fees (like the Chase Sapphire Reserve at a WHOPPING $795 annual fee), but again, it comes down to doing the math and seeing if what you are getting is worth that cost. For example, that specific card comes with a $300 travel credit – so if you are spending $300 on travel in a year, that already puts a big dent into the value you’re getting from that annual fee. It gives you lounge access and a bunch of other credits as well – just make sure these are things you would use and value before jumping into a high annual fee card like that!
Transferable Points vs. Program Specific Points and Miles
There are two kinds of points and miles that you can earn. Transferable points are earned with a bank and can transfer out to travel partners like airlines and hotels. Program specific points are tied to just that one airline or hotel, so they are less flexible.
Transferable points are typically better for most people when they are starting out. This is because they are more flexible and give you more options to redeem them. You earn transferable points with travel credit cards that are not branded with a specific airline or hotel program. Examples include:
Program specific points are locked into one particular program, such as hotels or airlines. These are not flexible, but can bring very valuable perks if you regularly use that partner. For example, many airline credit cards provide free checked bags and hotel cards often come with a free night award. If you know you will use the points and make use of the benefits of the card, these can be good cards to get. Examples include:
Earning and Redeeming Points
Take the vacation! Many people hoard their points and save up for years. I think everyone should do what they want, but know that points get less valuable over time. Flight costs are regularly increasing, hotel points rates are constantly going up and so I typically don’t hoard my points. I earn them and book trips as soon as I can.
With flexible points currencies, you can book travel in the bank portals. However, you typically get more value by transferring your points directly to partners. Most people don’t do this and don’t understand how much more valuable this can be. I transfer almost all of my Chase points to Hyatt for our hotel stays!
How to get started!
Open up a credit card and meet the minimum spend to get the sign up bonus. Start slow and be strategic. Think about your travel goals – where you want to go, what type of travel you want and choose your first card based on that. This hobby can get very complicated quickly, so try to not get overwhelmed.
I highly suggest starting with a Chase Sapphire Preferred and transferring those points to Hyatt for free hotel stays. It’s a really easy way to get an affordable hotel stay covered completely free with points! Or if you want flights covered, you can transfer those same points to airlines like United or Southwest.
Where I’ve been with points and miles
There are so many great places you can go with points. My husband and I have been on several dive trips to places like Mexico, Aruba and Greece on points. We are taking our kids and my parents for a long weekend in San Diego and have a spring break trip to Arizona planned. I spent an epic 10 days traveling Italy with one of my best friends. The possibilities are endless. I’ll include a few links to trips with more details here:
Final Thoughts
I hope you enjoyed this points and miles 101! It is a lot of information and this is only scratching the surface. While there is a lot of opportunity here, everyone’s journey is going to look different. Think about your travel goals and put together a credit card plan that will help you achieve them.
Don’t get FOMO and chase what you see other people doing all the time – that can be a real thing if you start following points and miles influencers and blogs. You do you. Points redemptions, whether big or small, should be personal and what’s best for you in that moment!
