Let me begin this post by saying that you should not churn credit cards if you are a student. You probably shouldn’t even apply for more than one or two, and only then under parental supervision. I have seen and read about too many people get in deep trouble after abusing easy credit before they have a solid concept of debt and income.
Let me also say that while I describe myself as a student, I do have a regular salaried job as a “graduate researcher” with a contract guaranteeing that income for up to nine years. (But if you’re going to take nine years to complete graduate school, you have other issues.) I also had a part-time job, sometimes two, throughout my college years. And I have always paid off my balances in full every month. I view credit cards as a convenient payment mechanism, not a loan. Rewards credit cards are even more dangerous because they often have higher interest rates and other fees to compensate for the benefits.
So to repeat, this post is NOT to be interpreted as an encouragement for students to churn or even apply for credit cards. But since I am sort of a student, I get questions about how I manage to make the churning game work. I think the real question is how I make this work on a limited income, so I’ll focus on that. This post was prompted by a question from Vinny on Twitter (@HouseofV):
@HackMyTrip did you ever write about how you got all your CCs while being a student and pre-blog? How you dealt with income/employment q’s?
Applying for Credit Cards
First things first: How did I fill out the applications? Well, when it asks for my employment status, I select “employed, full time” instead of “student” because it’s true. I work full time. The school classifies me as part time because they want to avoid paying me benefits, but they double the pay rate on a so-called 20 hours a week to make sure I still get a living wage. Truthfully I’m in lab 40 to 60 hours a week. So I’m full time. And I’m employed. I just also happen to be a student. If you don’t have a job, then you can’t get around this question.
What about my income? Well, I have a decent salary. Not much but decent–it works out to close to minimum wage. And then you’re allowed to add “other income,” so I include some dividends and the gifts I get each year for birthdays and holidays. Only another grand or two, but it’s something. I don’t list more than I reasonably expect. And once Megan moved in, I got to take advantage of “household income,” which many applications ask for rather than the more restrictive “individual income.” Make sure you click on the question mark next to it to see how the bank describes the number. In most cases the definition is quite liberal.
Finally, income is only important so far as it compares to your debts and expenses. I have no debt. I was fortunate to have a full scholarship to college, and my part time jobs allowed me to take care living expenses. I’ve also been a prodigious saver since I was 10. Even now I save 20-30% of my meager income (I do dip into it, but the point is that I set it aside to begin with).
I can do this because my expenses are quite low. My share of the rent is under $400 a month. Generous budgets for groceries and dining out are another $400-500. Maybe I spend $100-200 on other stuff. I’m living on half of my income. (Just to be clear, if the earlier question asks for my household income, I include all the rent. If the question asks for my personal income, I include the half of the rent I am responsible for.) In contrast, Megan has to set aside a quarter of her income for student loan payments before she gets to live on what’s left.
Assuming you can create a compelling application, don’t apply for a dozen cards at once on your first try. That’s stupid. Even if you have an excellent credit score, you have no idea how or if you can manage that many cards. I started slow, with one card. Then I added another two years later. Then another a year later. Soon I was applying for two at a time, and lately a couple every few months. I have worked my way up to what I can tolerate, and I think I’ve realized my limit.
This is why students shouldn’t churn cards. They don’t have enough experience to know when they’re in over their heads, and they don’t have the income to save themselves if things go wrong. But if you have a stable job, even with a small income, you can probably work your way up to a strategy within your means.
Planning Carefully to Meet Minimum Requirements
We’ve all read about strategizing your applications with multiple banks that pull from different credit bureaus. However, you also have to be careful about selecting the right cards. I would never apply for the new Ink Bold business card promotion, with a $10,000 requirement to achieve the sign-up bonus. Where am I going to get $10,000 to spend in a few short months? I’m struggling with the $5,000 requirement on the old promotion that ended last month. If you have a limited income, stick to cards that require small or no minimum spending requirements, or those that give you plenty of time (like $1,000 within the first four months).
In the past, Megan and I have addressed large spending requirements by anticipating major expenses or taking advantage of family. I met the high thresholds on my SPG American Express and my Chase Sapphire by paying for Megan’s engagement ring. I knew that expense was coming up at least a month in advance with time to apply. I met a previous requirement by pre-paying for the hotel when I took Megan to Hawaii (a trip I saved up for over several months). Megan met the requirement for her Chase Sapphire by paying for my dad’s business trip to India and getting reimbursed, but that was a fluke. It just meant we reached our goals ahead of schedule.
In general, we don’t apply for high-cost cards without anticipating large expenses. Other cards are easy to take care of with daily expenses, even when they’re only $1,000-2,000 a month. This is easily attainable just by putting everything on a credit card. Groceries, gas, clothes, car insurance–you name it. I still don’t understand why my parents pay for groceries with a debit card. If you pay the balance every month on a credit card, it’s virtually the same transaction but with a bigger reward. I do not generally abuse things like free-after-rebate offers, the U.S. Mint, or Amazon Payments. I do use Amazon Payments, but for actual payments.
In short, Vinny’s question implied a difference in my pre- and post-blog life even though nothing’s changed. I don’t spend more than I make. I have savings in case something goes wrong. I answer questions honestly but in the most advantageous way. I take great care to plan my future expenses and how many cards I can reasonably expect to manage in that time. When I have a large requirement to meet, Megan holds off and applies after I’ve taken care of it. We do not put ourselves in difficult situations.
Thanks to these healthy habits, my credit report continues to be unmarred by any negative remarks. I got a little heat from Chase when I applied for a business card, but the complaint was only that the computer said I had too much credit, not that I had actually abused any of it. I gave some up that I didn’t need and got approved. In fact, I applied for six cards in that application cycle, and my score didn’t go down at all. It’s now above 800 for the first time, but I think I’m going to take a break for now. Like I said, don’t take on more than you can handle. I need to thin out my pile of credit cards before adding to it again. It’s just common sense.