There’s a whole pseudo-science on the web regarding the art of earning miles and points by means of credit card applications. Many in the mileage running and hoarding business use credit cards heavily to earn special bonus or signup-miles by applying at certain times or hitting minimum spend limits. With a decent credit score it’s a fairly easy game to play, though I’ll be the first to admit that the full ramifications of cyclically applying-for and canceling credit cards are still unknown. Still, that doesn’t stop many from churning out the applications.
Recently I came across the most outrageous example of this sort of activity from a blogger named Ben from The Man From 1000 Places, who actually applied to thirteen credit cards in one day in order to reap a total of more than 500,000 miles and points. Ten of those applications have currently been approved while another three are still pending. With a score in the high 700’s before the application, Ben expects his credit rating to take a brief hit but return to his normally high rate after 6 months.
With the 500,000 points, a wide variety of travel rewards and upgrades are available to the savvy hoarder. Round trip, business class tickets between North America and Europe, for example, cost 100,000 miles on American Airlines, and though the blogger wont be receiving all of the miles in one specific account he’ll be able to combine several of them.
In order to keep those points, he’ll will need to pay $233 in annual fees and then cancel most of the cards to prevent more annual fees. The only other trackable cost is his credit score. Gary Leff, co-founder of frequent flyer community milepoint.com and author of the ViewFromTheWing blog suggests:
Applying for credit generates a consumer-initiated pull of your credit score, and every time you apply for credit it’s an indication you might NEED that credit, and may be a bigger risk.
In the long-run you might well improve your score by having more available credit that you aren’t utilizing, and over time as the accounts age by having more older accounts. But the short-run effect of several credit pulls and a younger average age of accounts will make a big dent in your score.
If you see your score drop below 750 you’ll begin receiving higher interests rates on major purchases like mortgages, and those costs will likely exceed any benefits you get from signups. So it’s important to stay away from plenty of new card signups leading up to a home purchase or refinance. Individuals with more borderline credit may experience problems with auto loans.
Taking the time to apply for and earn the cards thus might be a decent way to get some extra points, as long as the financial preparations are made and the credit cards are properly disposed of. Hopefully there’s no long term financial impact beyond the credit score.
[Flickr image via Andres Rueda]