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.
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.
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.
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.