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This series is all about helping new travel hackers take advantage of the benefits offered by airlines, hotels, and credit cards in order to travel more for pennies on the dollar. To those unfamiliar with award travel, there is often a great deal of skepticism–and rightfully so, in many cases. Two of the biggest common concerns are worries about their credit score plummeting and the cost of credit card annual fees.

Today I’ll show you why neither of those are cause for concern.

Your Credit Score

The myth that having multiple credit cards adversely affects your credit score is one of the biggest hurdles for new travel hackers to overcome mentally. While it’s true that your score will temporarily drop a few points immediately following an application, it’s nothing to worry about – this happens with all inquiries such as credit cards, personal loans, and mortgages alike.

In fact, the opening new accounts generally has the opposite: your credit score tends to increase.

To understand why, take a look at how your FICO score is calculated:

Anatomy of your credit score. Source.

The largest factor in determining your credit score is payment history. Mistakes happen, but ensuring your payments are made on time is the number one thing you can do to improve your credit. I’ve slipped a time or two and forgotten to pay off a card (I thought I had cancelled it, turns out I hadn’t) and it took several months to get my credit back on track so organization is key.

Set up automatic payments for at least the minimum amount due and add your new cards to Mint or Personal Capital (affiliate link) or any other tracking program to ensure you have a handle on your balances. If you consistently have a hard time paying your balances in full, you should reconsider whether or not this hobby is right for you.

Second to payment history, the amount owed on your cards is the highest determining factor in your score. This alludes to your credit utilization ratio. In essence, it looks better if you have a lot of credit extended to you but use very little of it, as it means you are less of a risk at defaulting on other debts. Credit cards are a simple and fast way to decrease your utilization ratio. For example, if you have $1,000 in debt on a credit card with a $2,000 limit, you have a 50% credit utilization ratio. Ideally this should be kept below 30%, so having that high of a ratio may negatively impact your score. But if you open another credit card with another $2,000 limit and keep your debt the same, you’re suddenly at a 25% utilization which is much more favorable. Your credit score increases when you have a low credit utilization ratio, and the best way to do that is by having low balances and a high amount of credit extended to you.

Notice that “new credit” is only 10% of of your score, which is why any decrease to your score caused by opening a new card is small and short-lived. While a large number of inquiries or new accounts over a short period of time might lead to denials, if your applications are spread out by at least 30 days and everything else is in order then it should be no cause for concern.

In fact, once you’ve been at this awhile you probably stop caring about your credit score entirely.
(GCC: data point – after several years and 30+(?) new credit cards, my credit score has RISEN about 10 points to 810.) 

Once you start opening cards and reaping the benefits, the next question often asked is, “Why should I pay annual fees?”.

Why Pay Annual Fees

I recently put together a list of 5 cards everyone should have (coming soon!) These 5 cards come with $279 in annual fees ($374 after the first year). Why on Earth would you pay that kind of money just to have a credit card that the banks profit from? Jeremy covered this succinctly in 2016, but it bears repeating: the ongoing benefits you receive from the recommended credit cards far outweigh the out-of-pocket expense. Jeremy likened annual fees to a Costco membership, which is an excellent analogy. You are, quite literally, paying for the privilege of utilizing benefits that the credit cards offer. Cards with a higher annual fee usually have better benefits and thus are worth more. There is no such thing as a free lunch, and nobody knows that better than the banks. Let’s look at some examples of how you can leverage fee-charging cards:

Example 1: Chase Sapphire Preferred

Annual Fee: $95

Notable Benefits:

  • 60,000 point welcome bonus – $1,000 – This is conservatively valued at $1,000 – more than 10 years’ worth of annual fees. Transferring UR points to airline or hotel partners makes this bonus extremely valuable.
  • 2x points on travel, 5x on Lyft (through March 2022) – $100 – Do you spend more than $2,500 on travel or $1,000 on Lyft per year? A combination of the two? If so, you’ve already earned enough points to equal the value of the annual fee. The category bonuses can make a big difference in your earnings and are almost always worth the fee on their own.
  • No foreign transaction fees – $50 – Many cards offer this nowadays so there’s no excuse for paying fees while overseas, but most cards with the benefit have an annual fee. This is a great way to save a few bucks while you travel.
  • Reduced service fees with DoorDash – $25 – If this is a service you use frequently, the savings can certainly add up.
  • Auto rental collision damage waiver (CDW) – $100 – This is one of the few non-ultra-premium cards to offer full primary rental car insurance. Depending on whether or not you ever have to use it, this could be very handy. I invoked the benefit once after returning a car in Slovenia that they claimed had been damaged and it saved me over $500.
  • Travel insurance (trip cancellation/delay, baggage delay, etc.) – $100 –  This benefit is worth the annual fee just by using it once per year. My bags were delayed three times last year alone, netting me hundreds of dollars in reimbursement.

We keep harping on the benefits of this card, and it’s for good reason. On its face the Chase Sapphire Preferred seems rather standard, but looking under the hood at the benefits shows that each has potential to make up for the annual fee on their own. While you may not use every benefit each year, you can comfortably expect $350-$450 in value (or more, depending on your use), not including the welcome bonus, from year to year. This should be your go-to card for everything travel related.

Learn more here.

The Chase Sapphire Reserve is also an excellent card for those who travel even more. Learn more here.

Example 2: IHG Rewards Club Premier

Annual Fee: $89

Notable Benefits:

    • 140,000 point welcome bonus – $980 – Again, a conservative estimate (.07 cents/point) on the bonus points which can easily be redeemed for much more under the right circumstances such as low category hotels in expensive cities.
    • 25x points at IHG properties – $50 – Even if you only stay one or two nights at an IHG hotel each year, the bonus on spend at the property quickly accumulates. Don’t forget that this includes meals you have at the restaurant, massages at the spa, and anything else you pay for at the hotel.
    • IHG Rewards Club Platinum status – $25 – This will get you a free drink at the hotel bar or a few hundred points added to your account, but otherwise it’s not worth much.
    • Annual Free Night certificate – $280 – Although only redeemable at properties charging 40,000 points per night or fewer, using the conservative .07 cents/point estimate makes this benefit alone worth three times the annual fee. This is the major reason I have kept this card year after year
    • Fourth night free on award redemptions – $100 – This can easily net tens of thousands of saved points, worth hundreds of dollars per year, if used.
    • $100 Global Entry or TSA Precheck reimbursement – $25 – Usable once every four years, making it worth $25 per year. This is the lowest fee credit card that offers this benefit, although many of the more expensive ones do.

Again, after seeing how valuable the benefits are the real question should be, “why is the annual fee so low?”. For anyone that travels, even just once or twice per year, this card has some serious perks that heavily skew the value in your favor.

Learn more here.

Final Thoughts

While the initial thought of opening lots of credit cards and incurring fees can be off-putting, if you understand how your credit score works and the ways in which to leverage card benefits it ends up tipping the scale in your favor. Opening new cards improves your credit utilization ratio which in turn increases your credit score because of how heavily weighted it is in the algorithm. What’s more, annual fees charged by credit cards are not always a bad thing – think of them as the cost of membership for certain benefits and insurances. While not all annual fees are worth paying each and every year, the Chase Sapphire Preferred and IHG Rewards Club Premier are two examples of cards whose benefits easily justify the cost.

 

Brandon Chase is a financially independent writer, endurance athlete, and travel hacking enthusiast originally from Maine. He is currently serving out the remainder of his final overseas tour as a Foreign Service Officer with the U.S. Department of State in Islamabad, Pakistan and has previously lived in Cairo, Egypt, and Nicosia, Cyprus. Since getting hooked on “the hobby” in 2013, he and his wife have accumulated and redeemed millions of points and miles for luxury travel, including a $35,000 trip around the world for 97% off retail which he wrote about on his blog Fit For Miles. In addition to travel, he loves to be outdoors and has summited Mr. Kilimanjaro, thru-hiked the Appalachian Trail, and completed ultramarathons at the 50k and 50-mile distances. Brandon is thrilled to share his knowledge of credit cards, award travel, and optimization with the Go Curry Cracker readers and hopes to help people travel more and better than they ever thought possible.

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