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Our Introduction to Travel Hacking Disney was meant to get you acquainted with some basic concepts related to travel hacking Disney. This post is arguably much more important. Actually, it could be the most important on the entire site. That's partly why we put that handy disclaimer above.
This post is about the risks - actual and fictionalized - associated with travel hacking. But don't be scared off, because this post is partly about avoiding the actual risks. Moreover, this post covers some steps you can take right now if you decide points and miles aren't right for you today.
Are You Financially Ready For Points And Miles?
There's no simple answer to deciding whether you're financially ready for points and miles. But we've got two big questions to consider in evaluating your situation.
Do you Only have a few years of experience with credit cards?
This is going to be a small group of people, but if you're really completely new to credit cards, you shouldn't be focusing on using points and miles. Rather, you should be focusing on developing a credit history, making sure you pay your balance in full every month, and following our other tips for preparing to travel hack (below).
We suggest starting with a simple cash back card that will give you 1-2% back as you spend. The Citi Double Cash card is a great place to start because you get the full 2% as you pay your bill. This encourages you to pay your bill in full every month, which you must be doing to use points and miles effectively. Having one card open is a good start.
Another option is to go with a Discover it card (referral link). Even though that card earns 1% cash back on most purchases, it earns 5% back on rotating categories, so it gives you the chance to work on targeting your spending, as well. If you already have one of these cards, you might get the other to work on having two cards at a time. We don't suggest applying for both, though, unless you're really sure you won't be getting more into travel hacking for at least two years (you can read about the rules behind this here).
Do you pay your balance in full every month?
If you carry a balance on a credit card, you should not be focused on using points and miles to fund travel. The reason is that using points and miles is mainly driven by spending on credit cards, and the interest you will pay to maintain the balances required for significant points (e.g. signup bonuses) will outweigh the value of the points you earn. What's more, you'll be left in a more complicated financial situation than before, with more balances on more cards and more annual fees.
If you can't pay your balances in full, focus first on that and getting yourself to that point. In your spare time after that, review our tips below and take some time to learn about points and miles and travel hacking.
We can't stress enough, though, that you need to be consistently paying your credit card balances off in full, every month before you start thinking about points and miles.
Other Tips Before You Start Travel Hacking
If you're young (or even if you're not) you might also want to ask your parents to add you as an authorized user on their accounts. As long as they are responsible spenders, this will improve your credit score. I was born in the late 80s but my credit report has accounts going back to the 70s on it! That said, I'm in constant fear of my parents missing a payment and things taking a turn south.
Moreover, you need to have a complete understanding of your budget. We were budgeting freaks before we started travel hacking, and while it wasn't completely a seamless move for us, things went much more smoothly because of how well we managed our money. Budgeting isn't just about spending less (arguably it doesn't have to be about spending less at all). It is about knowing where your money is coming from and where it is going.
Learn about everything other than points and miles (including from us). Learn to find the cheapest flights. Learn to find the cheapest hotels. Try a few flights on low-cost airlines. Maybe get TSA PreCheck. Find ways to get lounge access on every flight. A good travel hacker is multi-faceted and doesn't need to spend miles to do everything.
Finally, build a knowledge base in travel hacking. We didn't learn too much before we started, and we made some mistakes as a result. Travel hacking is incredibly deep. Check out our list of suggested sites over on our resources page. Bookmark them. Read them daily. Read their starter guides. And, of course, subscribe to us!
How Travel Hacking Impacts Your Credit Score
As with all things, your mileage may vary (that's travel hacking slang for "your experiences may differ"), but the most common fear people have when it comes to travel hacking is what it will somehow destroy their credit score. Remember, the best travel hacks require credit card companies to trust you. There would be no such thing as travel hacking if these strategies burned that trust by crushing credit scores. Let's go over some basics about credit scores and travel hacking.
What Is A Credit Score?
Most commonly (and in all our content) "credit score" refers to a FICO credit score. A FICO credit score is a number between 300 and 850 that is used to determine how creditworthy you are as a borrower. The higher the number, the lower interest rates you'll get, and the more borrowing opportunities you'll have. Experian claims that a score of 700+ is considered "good."
The three major credit reporting agencies in the United States (Equifax, TransUnion, and Experian) use the information available on your credit report and a formula (developed by FICO) to produce your FICO score. While the exact formula is not public, we do know that your credit score is made up of the following factors:
- 35% of your score is made up of your payment history
- 30% of your score is your credit utilization
- 15% of your score is your length of credit history
- 10% of your score is made up of the types of credit you use
- 10% of your score is your request for new credit
That 10% for new requests — that is the fraction that is most negatively impacted when you apply for a new card. Length of credit history will see a temporary dip from newer accounts but will be strengthened in the long-term as more accounts stay open longer. The other factors ("types of credit" possibly excepted) will all be improved as you show yourself to be a more trustworthy borrower, capable of having lots of credit and not using it irresponsibly.
Based on the above factors, we can easily evaluate how managing your credit cards impacts your credit score. When you pay your balances in full every month, you improve your payment history, keep your credit utilization low, and continue to build longer history. When you get new cards, you create opportunities for more payment history and reduce credit utilization, but your average age of account will temporarily dip. That's okay though, because as you build up more cards over a longer time, new cards are less significant. This is why you need to keep the accounts open for long periods of time.
A Real Life Example
Here's a chart of one of our credit scores, courtesy of Discover:
We've compared our credit score charts against card applications. What we found was that about half the dips were associated with new cards, half the dips didn't follow new cards, and several times new cards were followed by increases in our scores. This chart is obviously just an example from one person, it is not proof of what will or would happen in your situation.
How To Avoid The Pitfalls
None of this is to say you don't have to be careful with how you travel hack. There are risks involved.
If you're not organized enough to make all your payments, for example, you run the risk of dinging your score. This is probably the biggest pitfall in opening new cards. A missed payment can really hurt your score. Always set your cards to autopay the minimum amount as a backup. Personally, we check all of our cards (even some we haven't used in years) at least once every two weeks to make sure everything is clear.
If you apply for multiple cards at the same time, you're likely to wind up with a temporary dip in your score. This is a strategy more commonly associated with "churning" than simple "travel hacking," but people will often consolidate applications so their credit score is only hit at a specific time. Remember this can make it difficult to earn signup bonuses. Opening new lines of credit and keeping them paid is good for your credit score in the long run. So don't think of travel hacking as an either/or - it is a partner in developing your credit history and proving yourself a responsible borrower.
Pay attention to annual fees. We've written elsewhere about annual fees and how to decide whether they're worth it. For every card, you need to answer the following questions:
- What is the annual fee?
- Is this card worth the annual fee?
- What is my next step for this card?
As far as next steps, you need to know whether you can downgrade the card (a "product change") to a no-fee or lower-fee option. Remember, you don't want to close accounts if you don't have to, but you also don't need to pay a bunch of unnecessary annual fees.
Travel hacking may be for everyone (well, everyone who travels), but that doesn't mean everyone should start trying to use points and miles today. You have to have your financial house in order if you're going to get real value from points and miles.
When In Doubt, Start Slow
We earned roughly 1,000,000 points in our first year of travel hacking, but we don't expect you to do the same. In fact, if you're a Disney fan looking to plan a Disney vacation, you definitely shouldn't be aiming for 1,000,000 points. Strategies that get you 1,000,000 points are great when you're traveling the world, but they're usually not great for repeat visits to specific destinations.
Many of our best, most powerful hacks require only a few credit cards:
- Doing Walt Disney World for Almost Free (Jan. 2018) - (Four cards for a family of four)
- Visiting Aulani on Points - (Four cards for a couple, four nights, round-trip first class)
- Flying to Asia in Business Class on points - (Three cards for a couple)
Feel free to pace yourself. Get one card and see how you handle it (we discuss some options in the closing post of this series).
The easiest hack is probably to get the Chase Sapphire Preferred, earn its signup bonus, and use those points to save $625 when booking your Disney hotel through the Chase travel portal. It's straightforward, it doesn't require an annual fee the first year (after which you can change the card to a no-fee option), and it only requires one card.
Next up is "The Basics of Points and Miles." We're through the prep work and background and ready to start learning the real meat of the issue. We'll cover what points are, how to earn them, and how to use them for maximum value.