Alright, if you’re here from our previous introduction post, you’re interested in learning more about miles and points, and how it can work for you. If you’re just joining us, welcome! This is the start of our new Miles and Points guide for Beginners!
Before we get you started with earning miles, I want to first address some of the common concerns and misinformation that I hear when I talk to people about miles and points. Below, you’ll learn about the top ten myths surrounding miles and points, and the truth behind them.
Myth #1: Signing up for credit cards hurts your credit score.
This is perhaps the most common one that I hear from people. And technically, if you read it at face value, it is not untrue, but it doesn’t tell the whole story. Signing up for a new credit card does initially lower your credit score by about 10 points. However, this is only temporary, and in the grand scheme of things, is not significant on your overall credit score, as asking for new credit only comprises of 10% of your entire credit score. To illustrate this better, you need to understand how your credit score is calculated. Take a look at this infographic:
Your credit score is made up of 5 different components.
Diversity of Credit (10%)
There are two main types of credit: revolving and installments. For example, credit cards would count as one type of credit called revolving credit, while car loans or mortgages would count as another type of credit called installments. The more diverse your credit accounts, the higher your score in this area.
New Credit (10%)
Whenever you apply for a new credit card or get an inquiry on your account (eg. such as when applying for a loan or mortgage), this counts as a request for new credit. These inquiries only stay on your file for two years. The more inquiries you have, the lower your score.
Length of Credit History (15%)
This is an average age of all the credit accounts you have open. Having accounts opened for a long time will boost your score here. Lenders want to see that you have stable credit accounts that are open for long periods of time, and not opening and closing accounts frequently. That is why it is important to know which credit card you have had the longest, and to keep that credit card account open if possible, as it will help keep your score up in this aspect.
Payment History (35%)
This one is pretty simple. Consistently make all your payments on time, and you will have an excellent score here. Any late payments will affect your score negatively. Paying the minimum payment is fine and will not negatively affect your score. Note that this is the largest determining factor of your credit score, but is also one that you can easily score well on.
Credit Utilization (30%)
This one interestingly confuses a lot of people. This metric scores you on how much credit you are using out of your total available credit.
For example, if I held 3 credit cards, each with a limit of $5,000, my total available credit is $15,000.
If I then spend $1,000 on a new TV and $3000 on a new camera, the credit used would be $4,000.
Therefore, my credit utilization would be $4,000 / $15,000 = 27%
The lower my credit utilization, the higher my score.
To add to this example, let’s say I applied for a fourth credit card, again with a credit limit of $5,000. This would bring my total available credit to $20,000.
But just because I applied for a new credit card, it doesn’t mean I will spend more overall, so let’s say my spending is still $4,000.
Now, my credit utilization is instead $4,000 / $20,000 = 20%
So by applying for a new credit card, sure, my score would suffer a small hit when applying for new credit (worth 10%), but my score in terms of credit utilization (worth 30%) actually goes up! This is a big reason why signing up for new credit cards does not necessarily impact your credit score overall.
Even if you know that you have a low credit score to begin with, perhaps from many late payments or a high credit utilization percentage, I wouldn’t shy away from signing up for credit cards altogether. While you may not be approved for higher-tiered credit cards, apply for cards that have an easier requirement. Chances are that your credit score will begin to improve faster from you using the card responsibly, rather than avoiding credit entirely.
Myth #2: Having a lot of credit cards is bad for your credit.
Somewhat related to Myth #1, but this is the idea that having a lot of credit cards is in itself bad for your credit. If you understood my example above about credit utilization, you would already know this is not true! Having more credit cards can actually improve your credit utilization percentage, as you theoretically should have more credit which you are not using. Of course, if you apply for a bunch of credit cards in a short amount of time, take the sign-up bonus, and just cancel the card right after, that would hurt your credit, and is not something we recommend. Hang on to the card for at least a year, and use the card responsibly, making small purchases on it and paying the bills on time. In the long run, you can expect your credit score to increase.
Myth #3: It’s too good to be true! Is it even legal?
Using miles and points is also commonly referred to as “travel hacking.” If you noticed, this guide is not called a “Travel Hacking” guide. The term ‘hacking’ is usually associated with ‘getting access to something illegally’. Since the strategic use of miles and points is in no way illegal, I won’t bother calling it that. We simply use miles and points in the most effective way to get the most value out of our travels, without breaching the terms and conditions.
Myth #4: It takes too long to earn enough miles for a flight / I don’t spend enough to collect enough miles
Actually, you’d be surprised at how fast your miles can accumulate! The trick is to make a conscious effort to maximize the amount of miles you’re earning for every purchase. A simple tip would be to pay using a credit card whenever possible, instead of cash. I’m genuinely shocked at the number of people who regularly pay in cash at restaurants or grocery stores! Some products can be bought through online shopping portals which would help get you additional miles. You can take advantage of surveys, contests or promotions that reward you with small amounts of miles for filling out a questionnaire or following a couple easy steps.
I want to emphasize that all these purchases are things I would be buying anyways, regardless of whether I am earning miles or points. I never spend more than I have to for the purpose of earning more miles. Never!
I’ll talk about more ways you can easily earn miles and points in a future post, but as someone who takes several trips every year, I’ve rarely struggled with not having enough miles. Usually, I find that my vacation days are the things in short supply!
Myth #5: Using miles and points is really complicated.
There is some truth to this one, but I think most of this comes from the steep learning curve that you need to get over at first. Once you get the hang of using one particular loyalty program and have tried using it to redeem an award, you can apply the same techniques to other programs and other award redemptions. Each loyalty program has their own specific restrictions or nuances, but the way they work is largely the same. The key is to understand the logic and strategy behind it, without getting tied up in the minute details of it all. Besides, nothing worth doing is ever easy! The value that you can potentially get out of it is totally worth the time you spend to understand it.
Myth #6: There are a lot of restrictions and blackout dates.
The only thing stopping you from being able to redeem an award on any particular date, is the availability of the seat, and you having enough miles to book it. Most loyalty programs do not actually impose any blackout periods for which you cannot redeem an award. They may charge more miles for peak season travel, but that’s the extent of it.
Myth #7: I can only fly with the airline that I’m collecting points for.
I’ve heard this one a couple of times, especially when I tell people that I use a particular credit card, such as the Alaska MBNA Mastercard, which I use to collect Alaska Mileage Plan. They will say something like “But you can only fly Alaska”, or “Where can I even fly to on Alaska?” Most mileage and points programs are part of a larger group or alliance. For example, Aeroplan is Air Canada’s loyalty program (until 2020 anyways), but since Air Canada is part of the Star Alliance group, I can redeem an award using Aeroplan to fly on other Star Alliance airlines, such as EVA Airways.
Some loyalty programs belong to airlines who aren’t part of an alliance, such as Alaska. But since they have partnerships with many different airlines, I can use Alaska Mileage Plan to redeem flights on Alaska Airline partners, such as Emirates or American Airlines.
Myth #8: I don’t fly enough for it to be worth it.
You don’t need to be a frequent flyer to benefit from frequent flyer miles and points. Even if you don’t travel very frequently, miles and points can help you travel more comfortably, or even make those dream vacations a reality. You also don’t need to use it just for flights. Some points programs allow you to redeem hotel stays. Signing up for miles and points programs is completely free, so it never hurts to collect the points. You never know when it will come in handy, and you’d be thanking yourself that you accumulated these miles over time.
Myth #9: I need to book super early in advance to get seats.
Some of the best deals that can be had when it comes to using miles and points is redeeming last minute seats a couple of days or weeks before departure. This is because airlines would rather fly with someone occupying the seat and generating at least a bit of revenue, rather than nothing at all. If your schedule is flexible, you can really benefit from this when using miles and points to redeem last minute awards.
Myth #10: I don’t need to travel in luxury in first or business class, I’m fine with economy, so I don’t need to use miles or points
Miles and points are not exclusively used to redeem first or business class – you can use it for economy travel as well.
While you get the most value for your miles when redeeming premium products such as first or business class or high-end hotels, booking economy flights during peak season is also a smart move, as the cost of redemption using points does not change.
Sometimes, mileage and point programs run promotions allowing you to earn bonus miles when purchasing a certain amount of miles. When this happens, it could be more cost effective to buy the miles or points to get the bonus, and in exchange using those miles to redeem the same economy ticket you were going to purchase with cash.
Hopefully after reading some of these myths and the realities behind them, you are less afraid to step into the world of miles and points. I won’t lie to you – it will take some effort and determination on your part, but I can tell you that the rewards are well worth it. With that out of the way, in our next post we will get into the details, and talk about the different types of Miles and Points.
Part 3: What are Miles, and what are the different Types? (COMING SOON!)
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