Why signing up for credit cards to get frequent flyer miles is a bad idea

     If you look at enough travel websites from my peers, you will notice that many have ads with sexy come-ons like “Get a free flight ticket! or “25,000 miles guaranteed!” The idea is to get a bunch of credit cards to take advantage of their frequent flyer mile offers. I love frequent flyer miles, don’t get me wrong. I have a long page on my website about how to get the most out of them. However, I feel the need to be a wet blanket as I can’t support getting credit cards just for that reason.
     I use the plural, “cards”, on purpose. By all means get one (or a case can be made to get two cards for those rare moments where VISA isn’t accepted, but MasterCard is, or vice-versa) as it is hard to travel without a card, primarily for buying flight tickets online or for use in an emergency, but the problem is that credit cards are serious business and churning them puts you on the precipice.

     I flew from Frankfurt, Germany to Marsa Alam, Egypt for $55 one way including all taxes on Condor, using no miles and accruing no miles (and paying cash, I think), so frequent flyer miles aren’t always the be all and end all.

So how exactly does this lead you down the road to ruin?
     There are two problems that can easily snowball on you: debt and a lower credit score. Debt would seem to be obvious, but many people have a surprising appetite for it. Since having more cards begets more spending, keeping track of it can get out of hand, and if there is anything worse than credit card debt, I don’t know what it is. Maybe loanshark debt, but the gap between a private, third-party collection agency that hounds debtors relentlessly and Fat Tony with his “associates” is getting narrower.
     It follows to ask: does any of this matter if you are diligent about paying your card off? Yes, because the other issue is a lower credit score. Credit cards are powerful instruments. If you acquire a lot of credit cards and close them after you get the mileage benefit (known as “churning”) this affects your credit score, and, like it or not, a credit score is nothing to mess with.
     If you aren’t much of a consumer like me, and you think that a credit score only matters when you want to take out a mortgage to buy a house, here are two sobering articles about the myriad of ways your score can affect you, the first from Forbes and the second to put the fear of God into you with this nugget: “A low credit rating or bad credit report can negatively affect virtually every aspect of your life.”
     In the second article it’s mentioned that a landlord is allowed to access to your credit score and can decline to rent based on it. This sounds absurd, but it’s true. Landlords have power. I lived in Silicon Valley during the dotcom bubble and landlords wouldn’t let you rent a crummy apartment without seeing your internet startup’s business plan and a cut of the action.
     I can also vouch for a utility demanding a huge deposit. I lived in West Palm Beach, Florida one winter and my Polish roommate had no credit since she wasn’t a resident and had no credit history, so the utility would only give us service if it was my name on the account. This is understandable to a degree, but I find it maddening that no credit is worse than bad credit.

     If you are a frequent flyer in Los Angeles, you want to sit on the right side window of the plane for both arriving and departing for the best views, trust me.

     There is an unsettling lack of balance I read about the wisdom of getting multiple credit cards. I read one website touting churning that claimed to the effect, “My score went down a little in the beginning but then came back up”, but that applies to him and only him, making it almost irrelevant as it’s unlikely any two people have an identical credit history. Usually the website will invoke a very cavalier “use credit responsibly” mantra, but I find that disingenuous at best and irresponsible at worst.
     The small print on these “amazing offers” needs to be scrutinized, as well as the tendency to regard the fees and the conditions as an afterthought. I’ve become inured to the screams on one page that a credit card will give you tens of thousands of “free” miles and then when you click on the link, on the next page you then learn of the hefty spending minimums, annual fees, and, what I dislike most, having to sign up for scheduled payments so the onus is on you to opt out by cancelling. Why not just bill me? It’s a credit card, after all. There is also a definite opportunity cost to communicating with your credit card company, especially on the road, and let’s not forget that you are traveling. You are a traveler. You want peace of mind while on the road, not worries about juggling your credit cards.
     This is why I say it puts you on the precipice. If you can manage them well, you might be perfectly OK and you can get reap all the perks and miles, but it can also put you at risk.
     If you want to see the details of the credit card companies’ tricks, there is an excellent documentary from Public Broadcasting Service, “Secret History of the Credit Card” that will make your blood boil, plus an extensive website with all the background. Politically, there isn’t much pressure for reform, not when our Vice-President and his son are knee-deep in the industry.

     I do like that Capital One lets me use my own photo for the card

     Going to the other extreme, do you need a credit card at all? I discuss this in the money and credit cards part of my website. I have a supposed travel-friendly credit card, Capital One, and while I’m a big fan of the lack of conversion fees, it tests my patience.
     One example: when you call to tell you are traveling (you can’t email), they want to know the exact dates of every country you are visiting for the next 30 days, and then call again and repeat this every 30 days. Even then it doesn’t make your card immune to being blocked, which means another panicky Skype session. Calling Capital One on a shaky Skype connection while announcing your credit card number out loud in a cramped internet cafe in India isn’t my idea of a good time. (At least I could use Skype; I had been in Ethiopia before, where it was impossible.)
     This is a very North American-centric post. I don’t know how credit card companies work in other countries, if there are many airline mile offers, or what consumers’ rights are. My guess is that non-Americans shudder in horror at our system, but maybe it’s similar elsewhere.

What do you think?
     I know this is a minority opinion. Am I the Master of the Obvious and an overreacting alarmist? Do I seem like the type of person who wants even more labels on cigarette packs stating that smoking is dangerous? Is it indeed enough to say, “Use credit responsibly?” To quote the BBC, “Have your say.” Don’t be shy.

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Why signing up for credit cards to get frequent flyer miles is a bad idea — 11 Comments

  1. I agree! I got hooked after signing up with two credit cards company and got two free flight. Then over time I signed up for more, so now I got three or four cards that I am carrying around with annual fee somewhere between $70-$90. But after the initial promotion of a free flight, in order to get another free flight I am looking to have to spend between $10,000 and whatever (so it doesnt make sense to keep it longer than a year, but then I feel bad and it affect my credit if I just cancel the card + I like them -the airline/the card!) on one card which is impossible. So moral of the story, one or two card is ok; but then after the honeymoon period it just a straight up hightway robbery. And the other thing one got to consider is how much it cost for a flight ticket, how much one have to spend to qualify for a free flight, and how much tax one pay for that free flight.

  2. Thanks, Josh and Don for your story. It’s interesting to read someone’s firsthand experience. Yes, “free” flights can come with a lot of fees or taxes!

  3. I’ve had dozens of cards since I started churning them a few years ago and have flown “free” (taxes/fees ranged from $5 to $150 or so) many places that would have cost me many thousands of dollars- in economy; I don’t buy into the BS about redeeming only for first class international for the best value.

    You have to stay on top of EVERYTHING and it can be a little complicated, but I enjoy it; it’s a hobby that makes me think of traveling during the half of the year I have to work. I always cancel cards when the annual fee comes due after the first year, and I don’t spend much money so I have to plan carefully for meeting minimum spends. My credit score is excellent and higher than when I started.

    I usually don’t help friends or family with this stuff because they always seem to screw something up: not meeting the spend, not cancelling in time, whatever. So I think most people, like you say, are better off not getting involved. Most people think just having the temptation of credit available is dangerous, which for me is ridiculous. Don’t spend money you don’t have, always pay your bill in full each month, never pay a cent in interest.

    Warnings and risk aside, if you are detail oriented and have some time to research and follow through, there are thousands (no joke, 10’s of them!) of dollars of value to be had.

    I also think within a few years most of the good opportunities will be gone. Offers are going down, minimum spends are going up, and creative ways of meeting the minimum spends are going away (like the US mint coins).

  4. That’s great info, Andy, thanks. Do you have to cancel the card after a certain period, or can you just wait until you get the miles benefit? (I am waiting 6 weeks to get my Turkish miles to show up in my United account, and this is in the age of the internet.)
    Someone pointed out that FICO algorithms can lower a credit score when cards are not used and when a balance isn’t carried. It relates to the idea of whether or not a consumer can demonstrate (what is in their eyes) good bill management. Did you ever have a problem with inactive cards?

  5. Agreed with Andy.

    I think there are some genuine perks and benefits out there, but you have to be diligent. Personally I am quite lazy and so prefer to keep it simple: One credit card, for big purchases or when cash is inconvenient, paid off every month.

    I am now also wary of those pre paid international debit card things that you can get from major travel companies, like the Travelex Cash Passport. Took one of these things to NYC, found I could not withdraw cash from it as I was told by the rep at Heathrow.

  6. I’m not an expert at this, just an enthusiast, so this is all just my understanding.

    Most cards come with the first year annual fee waived, so I cancel the card a year later when the annual fee comes due. This will ding your credit but it’s only a small amount and temporary. If there’s no annual fee I keep the card, which is good for your credit even if you don’t use it because it keeps your credit lines up even when you cancel other cards and maintains the age of some accounts. Your first card or two should be one with no annual fee that you plan to keep basically forever; if you suddenly closed ALL your accounts and lost access to all your credit that might take a serious chunk out of your score. My understanding is that FICO wants to see a fairly high amount of credit available to a person, and that only a smallish percentage of that credit is being utilized. I haven’t ever heard that not using a card can lower your score, however, the bank that issued the card might feel you’re abusing their generosity if you do it too much and close your accounts/blacklist you.

  7. I think the system is different in the states to the UK, I have numerous cards and none come with a fee. The balance on all if they’re used are paid off automatically by direct debit each month. Different cards provide me with different benefits, 5p off petrol, clubcard points, marks and Spencer points or free worldwide usage. In the past I even signed up for a Sony credit card to get a free mp3 player, which I used, then cancelled after 6 months. So far, no problems with credit ratings. all of my credit advice is received from my money god, Martin Lewis. http://www.moneysavingexpert.com/

  8. Thanks, Andy, IK and Emma, for your experiences. Numerous cards, Emma? Even Sir Martin Lewis says there’s no problem with it? Well done!

  9. Hi Kent,
    You can setup your travel notice on Capital One Visa account website. No need to call anymore. Although log into a financial website in a foreign Internet cafe pc can be risky as well due to possibility of key logger spyware.


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