Pen and Passport does not earn any commission from credit card sales unlike most sources on the internet. Our opinions and recommendations are unadulterated by lucrative bonuses – though if the big banks came calling, we might change our tune. Basically, you can trust our advice as being honest and is not motivated by sales incentives. With that out-of-the-way, shall we…?

Why are airline credit cards such a big deal?
As a Travel Editor the use of mileage earning credit cards is essential to my lifestyle. Earning mileage bonuses for card use and sign-up bonuses are key to my ability to maintain a cost efficient travel budget but still see the places I want to see and travel with my family. They can infuse a traveler with a large amount of miles (hence forth simply: points) into their account and bring travel goals instantly within range. How many points are we talking? That of course depends on the card, the offer at the time and any additional bonuses available – but generally it ranges from a free bottle of water to more than $7,000 in travel. I know, that’s a wide swath, but don’t get lost in the details just yet. Suffice it to say that I choose my new credit cards carefully but I sign up for several every single year.

How do I get the biggest rewards?
Your value and my value may be two different things. Points are not only personal, but vary in value for each airline and hotel. Let me give you an example. The Chase Ink business card recently offered 60,000 bonus points as a sign up bonus. Those points are a flexible “currency” and can be transferred into six airlines and five hotel chains. However, those points transfer in at a 1:1 ratio for all programs that partner with Chase and not all programs are created equal. For example, Hyatt hotels offer a tremendous value with hotel rooms starting at 5,000 points per night. The Andaz Papagayo on Costa Rica’s west coast (a Hyatt property) can be secured for 15,000 points per night or 7,500 and $125. Compare that with their nightly rate of $300-$450/night and the Ink offer of 60,000 points could be worth between $1,200-$2,600.

Another example for the same card would be using the points to take Singapore “Suites Class” one-way from New York to Frankfurt in a closed suite (and if you travel with a partner) a double bed. Drinking $400 bottles of champagne and ordering Lobster Thermidore for some justifies the $12,000 routine cost. For most travelers this is out of reach, but with travel credit cards it is easily attained. However, for a family of four in Baltimore, a single one way to Europe, regardless of how much value it may deliver, isn’t really worth anything if you can’t afford to take your family with you. Perhaps the most valuable partner Chase has is Southwest Airlines – the only bank that allows customers to transfer into the program. A family of four could easily get to Florida for a week at Disney with the same 60,000 points. Getting the most value out of these cards really comes down to where you want to go, and how many people you want to take with you.

Why do airlines offer these credit cards?
Airlines have made a very lucrative business of selling their points to third-party companies. It’s no secret that frequent flyer programs are big business, and thanks to public filings required by the SEC, we know that major carriers like Delta, United and American award more points to third-party partners (like the banks, hotel chains and others) than they do for sitting in the seat and flying on their planes. Delta recently inked a deal worth $2bn for American Express to be the sole provider for their cards and purchase billions of miles to reward their customers in the years to come. For the airlines, hotel chains, and frankly any other brand you see on a card that is not the name of the bank solely, this is a big way to garner liquidity in their business.

The credit card companies in turn want users to swipe their cards at the register of retailers where they receive a percentage of the transaction for processing fees. Banks also make money from interest charged to the cards and in some cases, from annual fees. Most customers do not shuffle between dozens of credit and debit cards in their wallet every time they want to make a purchase – people primarily use one or two cards for everything. By offering a big incentive for consumers the banks are hoping to push another card out of your wallet and become your go-to payment source, thus they will provide huge bonuses for initial sign ups, retention and ongoing spend to make sure they remain “top of wallet”.

What about my credit score?
When I apply for new cards, two things immediately happen to my credit score. The first is that my score will drop a little due to a new inquiry. While I never want to see a drop in my score, I am comfortable with a small drop (depending on how many accounts I open) for temporary amount of time until the recent inquiry hit drops off my report in 90 days. To give you some idea of what kind of drop I see, a new inquiry might lower my score by 3-5 points temporarily, and in the days of my youth when my credit wasn’t as strong, perhaps 10-15 points for the same period.

The second thing that happens to my credit occurs once the 90 days expires, that effect is an increase in my credit score for the long-term. A new credit line is essentially a credit score “investment” because when I am approved for new lines, my overall utilization will drop, my credit is further diversified and my score always goes higher than it was before. The reason why my utilization drops is because I now have more credit but continue to spend the same amount. For example, if you have $20,000 in credit available to you, and you charge $3,000 every month, you are utilizing 15% of your credit. That’s good, but banks like to see less than 10% to earn their highest marks. However, when you apply for a new credit line and are approved for another $20,000 in credit but continue to spend just $3,000/month, now you are only using $3,000 of an available $40,000 in credit lowering your utilization to under 10% and increasing your score for as long as you have a better utilization.

Another area new credit account effects your score is the overall average age of your accounts. This is not something that will be solved in 90 days however as the average age gets lower and lower with each new approval. Banks want to know they are working with someone who doesn’t mind a little commitment and the longer you keep your cards open, the lower the overall score. But some cards have annual fees so it wouldn’t be prudent to maintain cards after the first year when you have received the bonus but don’t really use the card. Closing accounts would then lower your utilization and not solve your average age of credit issue, so what is the solution? Annual fee cards can often convert into free, lower tier versions of the same card thus keeping the accounts open longer and eliminating any harm to your score. As time goes on the average age increases again improving your score. For me, it’s a constant trade-off between points I want to gain through new card sign-ups and how many points on my credit score it will cost me to incur the new account.

Wait, so applying for a bunch of new cards won’t hurt my credit score?
The number one thing that people ask me about credit cards when they start to seriously travel is, “Won’t that hurt my credit?” The answer is of course yes it will, but people then seem to dismiss the second part of the answer, “But the damage only lasts 90 days and is just a few points.” If you have a 720 score or better, sacrificing even 10 points on your score will not be the difference between getting a loan or mortgage, however, depending on where your score is it could affect your interest rate. If you are close to buying a house, car, on the line of acceptable credit (640-700 for midrange cards, 740-820 for top-tier cards) signing up for cards may not be a good idea until you can cross those hurdles. However, for most consumers with good to great credit, not applying for airline and hotel credit cards is missing out on an easy opportunity to see more of the world at little to no cost. You don’t want to experience FOMO as your friends travel the world and you stay at home with your perfect score.

I will gladly trade a small amount of credit score points today, for thousands of dollars back in my pocket and my toes in the sand.