I cannot emphasize enough the importance of establishing good habits before you begin applying for travel credit cards. Good credit is like a good reputation. It takes years to develop, but it can be lost in a day.
The money used to provide rewards has to come from somewhere. One source is higher interest charges usually associated with cards that give something back. You should always pay off your balance in full every month or else the costs will overwhelm any benefits. However, there are some very real rewards in the form of sign-up bonuses, on-going cardholder benefits, and better customer service.
Responsible use of credit also ensures your credit score will remain healthy. I opened “only” six travel credit cards last year to earn 150,000 miles, $400 in gift cards, two free nights, elite status with two hotel chains, and 30,000 hotel points. I know others who were even more aggressive in their applications, but I try to play it safe. Although each “pull” for your credit history by a card issuer will lead to a small decrease in your score, my current credit score is now higher than when I started.
Here’s one way to think about how credit scores work: Realize that applying for credit is worrisome to the banks. Why do you need money? Will you be able to pay it back? Applying for too many cards at once looks desperate. But once your good habits are demonstrated by a few on-time payments, the fact that you have open accounts and available credit begins to look like an asset. Because you have earned those early offers of credit, future banks may feel more confident to extend additional credit.
Just remember: it takes years to develop that trust and can be lost overnight. I have never missed a payment. I have almost always paid my bills in full each month. I hold on to my cards for years and pay my annual fees. The benefits of travel credit cards are worth it. But bad marks on your credit report can take years to be erased. It’s not worth the risk if you have poor or marginal credit or will be applying for a mortgage or car loan in the near future.
Disclaimer: I am not a financial advisor. You should always complete your own due diligence and consult a qualified advisor before making financial decisions.
