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Beginner’s Guide

Welcome to The Credit Kids!

Traveling is pretty much everyone’s dream. We see people on the Bachelor go to Pig Beach in the Bahamas, Instagram accounts like The Bucket List Family spend months in bizarre lands, or movies like Castaway on amazing Fijian islands and think, “Wow. I want to go to that place! I wonder how much would it be?” A quick google search later, and you end up depressed – there’s no way you could afford $1500 for flights per person and take your family to the Bahamas or Turks & Caicos!

Here at TCK, our goal is simple:  Help you actually get to that destination you’ve always dreamed of. Whether that’s an overwater bungalow in Bora Bora, monthly trips back to see grandma and grandpa, or a first-class flight to Europe, we promise you can do it for FREE with credit card points. No gimmicks, no harm to your credit score, no spending your entire fortune – just one week anywhere for free. Piqued your interest enough yet?!

Here’s what I think is essential reading before embarking on your credit card points journey. If any of your questions aren’t answered here, consider checking out the FAQ.

What are credit cards and how do they work? (if you already have a good understanding here, skip to the next section)

Credit cards. I sure love them! Unfortunately, they are pretty misunderstood (and most definitely misused) by people today. Tons of American families have $5,000+ of credit card debt, which typically carries high (20%+ interest rates). What most people don’t realize is that credit cards don’t have to incur credit card debt. Buying something with a credit card does NOT mean that you are going to incur debt. Mary and I have tons of available credit – but we never overspend, and have never paid a cent of interest.

As an example: let’s say you buy a burger at In-N-Out today. You now have a $5 balance on your credit card. You could pay it off today, tomorrow, or when your “statement” posts at the end of the month. I pay mine off every few days because I’m weird and obsessed with finances, but most people wait until the end of the month. As soon as that “statement” posts, you have anywhere from 21-30 days to make that payment to avoid paying interest. If you pay it all off, you pay nothing in interest. The bank only requires a minimum payment, but you should never do that. Paying only the minimum means that you pay interest on the rest of that “statement.” So, every month you NEED to pay off the entire balance in order to benefit (and not be hurt) by this process.

I fully get that some people have a hard time with spending and are physically unable to control that – if that’s you, it’s good you recognize it. Unfortunately, credit card points may not be best for you. The downside of buying things you can’t afford, paying interest, and getting into debt is FAR worse than any potential benefit of points or miles. With that being said, good credit card behavior can be learned! Please keep reading either way to see if you could improve your financial habits and reap awesome rewards at the same time. I know many people who were simply never taught how to use credit cards effectively, but now are experts in the points game – it’s not as hard as you think!

Why should you get and use a credit card?

So if using a credit card requires an extra step of paying off a card and monitoring it, why should you do it? Long story short – the benefits are phenomenal. There are more that I haven’t listed, but here are some examples of benefits you get from a credit card:

  • Build credit. If you never have a loan or a credit card, you won’t have a credit score. You need one to get a loan or a mortgage one day!
  • Cash or points back on every purchase. Usually 2-3% of every purchase, so spending $10,000 a year on a credit card means you’ll get $200-$300 cash back – money that a debit card or cash (yuck!) user would never get. It adds up!
  • Large sign-up bonuses. Spend a certain amount in the first few months and get $500-1000 worth of bonuses from the credit card company. This is the primary method to get your trips – it’s all in the bonuses!
  • Price protection, purchase protection, trip insurance, etc. Flight delayed? Some cards give you $500+ for hotel, food, and clothes. Accidentally lose your new phone? Some cards reimburse your purchase completely. New TV go down $100 in price? Some cards reimburse you the difference.
  • Fraud benefits – if your debit card gets stolen, the thieves have your bank information and your money. The bank usually will reimburse you (if you have a good one), but in the meantime your empty bank account means you can’t buy food, pay bills, etc. If a CC gets stolen, your actual bank account money is safe – but American Express is on the line. They’ll fight a lot harder to get their money back than your money.

How does a credit score work?

If you want a much more detailed writeup on this, head to our “How Will This Affect My Score?” post. For the reader’s digest version, keep reading!

Most people know what a credit score is, but few know what actually defines your credit score (or what their exact score is). Knowing what affects your score is helpful in knowing how getting credit cards might impact you. A credit score is basically a bank’s assessment of how likely you are to default, or spend all their money and not pay them back.

Every bank might have private variations of this, but FICO describes the credit score basic structure as follows:

  • 35% – Payment History. Pay on time, and banks trust you more with their money.
  • 30% – Credit Utilization. If you have a $10,000 limit and every month your ending statement is $10,000, it’s scary for the banks. You’re using all their money! If you only use $50 of your limit, it means you are a much lesser risk of default.
  • 15% – Length of history / average age of accounts. If you don’t have much history, it’s hard for the bank to judge you. Longer history and older accounts makes you a better candidate.
  • 10% – Recent Inquiries (new applications for credit cards). If a bank just gave you $100 yesterday, they are less likely to give you another $100 today.
  • 10% – Types of credit. If you have multiple types of credit (mortgage, car loan, credit card), then they know you can handle it responsibly.

So what would churning (getting cards for the sign up bonuses) affect? As you could probably surmise, only your credit utilization, length of history and recent inquiries will be impacted – and your credit utilization is actually a POSITIVE effect! For this reason, getting a few new cards will likely surprise you by making your score go UP a bit. That’s right – increase. I personally went from a 750 to a 780 after getting my first two new credit cards last year. Why? My payment history stayed perfect and my utilization went down ($1 balance out of $10,000 limit is better than $1 out of $1000). Since that accounts for 2/3 of my score, my score went up. After I got about 15+ more new cards, the impact on the other weighted factors was higher, meaning my score went down temporarily to the low 700s. My score is back up to 750 again as my “new requests” have gotten older. Lesson: Getting a new credit card won’t hurt your credit score. Misusing your credit card will.

What can the sign-up bonuses get me?

I’ll just cover this briefly here, because this will be covered way more in-depth on the rest of the blog. Long story short, banks want your business. Credit card customers are likely to move their investments to the card-issuing bank, relocate savings, get their mortgage there, etc. So in order to make you more likely to use their higher-margin services, they offer you big up-front bonuses on credit cards. The bonuses can range anywhere from $500 – $2000 worth of points and will jump start any vacation fund. The bonuses are the key part to this entire game.

Where do you want to go?

The best part about credit card signups is that you can go anywhere you want – you just need to know where you want to go!  Once you know what you want to do or where you want to go, you are ready for the rest of this blog. Read our travel guides to get ideas, and then use the tools we provide to start your journey there! Remember – if you ever have questions that you don’t see answered here, ask us and we will be happy to help you!