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How Travel Hacking With Credit Cards Affects Your Credit

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Travel hacking is the process of maximizing the value you can get from credit card rewards and benefits. It can be a great way to earn points and miles for cheap or even free travel. Many credit cards offer welcome bonuses, rewards and perks to make this strategy easy, but overdoing it can potentially damage your credit if you're not careful.

If you're hoping to learn more about how to use travel rewards to book your next trip, here's what to know about how it can affect your credit score.

What Is Travel Hacking?

Travel hacking can be done in several ways, while always working within the rules set by credit card companies, airlines and hotel brands. With the right strategy, travel hacking can save you hundreds or even thousands of dollars when you take a trip.

Some common travel hacking methods include:

  • Using multiple credit cards to maximize rewards and perks: Many travel cards offer bonus rewards on certain spending categories, and you can get more than one card to maximize your rewards on more than one area of your budget. Also, general travel credit cards often don't offer things like free checked bags when you fly or hotel elite status, but they do provide more flexible redemption options. Having a general travel card, an airline card and a hotel card can mean you're well-covered for maximizing rewards on a variety of spending.
  • Signing up for new credit cards to earn a big intro bonus: Many travel credit cards offer huge welcome bonuses worth hundreds of dollars or tens of thousands of points. If it's been a while since you opened your last credit card, getting a new one and earning the intro bonus could give you enough points or miles to cover a portion of your next trip.
  • Researching how to get the most value out of your rewards: Certain credit cards offer varying values depending on how you use your points or miles. For example, with the Chase Sapphire Preferred® Card, you can get cash back at 1 cent per point, book travel through Chase Ultimate Rewards at 1.25 cents per point or transfer your rewards to one of the bank's airline or hotel partners and potentially get even more value.
  • Earning points and miles in unexpected ways: Using credit cards isn't the only way to rack up rewards in a lot of airline and hotel rewards programs. You may also be able to earn points or miles by doing things like signing up for a dining program or an online shopping portal or by taking online surveys. Each program has its own set of ways you can earn extra points without spending money.

How Travel Hacking Impacts Your Credit

Because travel hacking often includes the use of credit cards, there are a few ways it can affect your credit score. Whenever you're trying to maximize your rewards earnings, make sure you're paying attention to the terms and conditions set by your card issuer, and also using and applying for cards responsibly.

Credit Inquiries

Virtually every time you apply for a credit card, the card issuer runs a hard credit check. Typically, it temporarily drops your FICO® Score by five points or less. But applying for multiple credit cards in a short period can be a sign of increased risk, which can have a compounding effect on your score.

You may be compelled to open credit cards one after another just to get the welcome offer, but that approach can damage your credit score and make it less likely you'll get approved for credit cards and other forms of credit in the future. For the sake of your credit health, avoid opening multiple credit cards at the same time no matter how appealing the intro bonuses are.

Also, most of these cards require good or excellent credit to get approved. Check your credit score before you apply, and consider using a tool like Experian CreditMatch™ to get prequalified for cards based on your credit profile.

New Accounts

The appearance of a new credit card account on your credit report shortens the length of your credit history, which can impact your creditworthiness.

Specifically, the addition of a new account reduces the average age of your accounts. Here's how that works: Let's say you have three credit cards. You opened the first 10 years ago, the second four years ago and the third one a year ago. The average age of these accounts is five years. If you then open a new account, that average will drop to 3.75 years, and if you open two cards in quick succession, it decreases again to three years.

A low average age of accounts can tell lenders and credit scoring models that you frequently open new accounts. That can be a sign of risk, and many credit card companies may deny your application if you've opened too many new accounts in the recent past. Again, it's generally a good idea to focus on opening a credit card with the intent of using it regularly for the long term and to avoid opening new cards too often for a short-term benefit.

Payment History

The more credit cards you have, the harder it is to keep track of your accounts. If you get overwhelmed and miss a payment, it could damage your credit score significantly.

To avoid this, keep the number of accounts you have open to a manageable level. Also, consider setting up automatic payments on each account and using budgeting software that imports your transactions across all of your accounts into one place.

Credit Utilization

Racking up lots of points and miles typically involves spending a lot on your credit cards. It can be a good idea to use your credit cards for all your purchases, but only if you keep balances low or pay them off each month. If you end up using a large portion of your available credit, your credit scores could suffer.

Your credit utilization rate is the percentage of your available credit—both on each individual card as well as across all of your accounts—that you're using at a given time. Experts recommend never letting your utilization rate exceed 30%, but there's no hard-and-fast rule. The lower it is, the better.

You can keep your utilization rate low by not using your card once you reach a certain balance or by making more than one payment throughout the month to keep it low.

Also, never rack up a balance just for the sake of earning points or miles. The value you can get from them is just a small fraction of the money you paid to get them, so stick to a budget and spend only what you'd spend whether or not you have a rewards credit card.

Also, while it doesn't impact your credit score directly, interest accrues on credit cards only if you don't pay your balance in full every month. Make it a goal to pay on time and in full to keep your balance low and avoid interest.

Monitor Your Credit to Maintain Its Health

If you're thinking of getting into travel hacking, it's crucial that you check your credit score regularly to make sure you're not hurting it with your new strategy to save on travel.

With Experian's free credit monitoring service, you can get access to your Experian FICO® Score, as well as your Experian credit report. Additionally, you'll get real-time alerts when new changes are made to your report, such as new accounts, credit inquiries and more.

As you keep track of your credit, you'll have a better idea of how your actions are affecting your credit and how to address potential issues as they arise.