Beginner's guide
If you are an average family, you are probably putting no more than $24,000 on credit cards each year. That amount is not enough for even one roundtrip ticket on most US airlines.
However, if you put your limited spending toward signing up for new cards continuously throughout the year, you could potentially get enough miles and points to pay for a trip to Europe for a family of 4 and have some points leftover. In the last year alone, I have acquired close to a million miles and points, all through our regular spending of just $24,000 per year.
First things first. This hobby is not for you if the following applies:
1) You are currently in debt and have a hard time managing it.
2) You tend to overspend when dealing with credit cards.
3) You have a mortgage or a major loan coming up in 2 years. That's when the credit inquiries fall off and the lenders don't see them anymore.
4) You have had bankruptcy or short sale in the last few years.
None of those things apply to you? Perfect! In that case, the information below is for you.
Understanding your Credit Score and Sign-up Bonuses
While your score will probably go down somewhat with each application, it's usually a small amount, between 5-10 points. Younger people may see a bigger dip in their credit score since they have a shorter credit history. The score normally recovers after 3 months, though no guarantees. As long as it stays above the 700 mark, your credit is still in the "Good" category.
Here are the factors that affect your credit, in the order of significance:
1) Payment history: 35 %
2) Amount used: 30 %
3) Length: 15 %
4) New credit: 10%
5) Mix: 10 % (variety of accounts like mortgage and other type of loans).
The biggest ones are "Payment history" (paying your bills on time and lack of delinquency) and "Amount used" (percentage you put on your credit cards each month relative to your available credit, also referred to as utilization). So to put it in simple terms, as long as you don't max out your cards and pay your bills on time each month, your credit score should be fairly healthy. That makes you a good candidate for this hobby.
The factors that are affected by new credit applications are "Length" (length of your credit history, which goes down with each application) and "New credit" (inquiries from the banks when they check your score). Keep in mind, when you get a new card, you in turn will have more available credit. That can decrease your utilization and actually increase your score. Sounds crazy, but it happens fairly often. I got 6 cards in the last year alone, and my official FICO score is currently 780, which falls into "Excellent" category.
You should keep your new card open for at least 6 months. Some issuers, like Chase, state in the terms they will take the points back if you don't keep your card open at least that long. So, it's better to be on the safe side. The cards with no annual fees don't need to be closed, period. Keeping no annual fee cards open helps to increase your credit length history. Those with annual fees will need to be evaluated individually. Some are worth keeping, especially if they provide a perk, like a hotel night upon renewal. Most cards can be cancelled through secure message in your online profile, so no need to call.
Both husband and wife can apply for a credit card in their individual name so they can double-dip on rewards. For example, one of the best offers currently is Barclaycard Arrival that gives $440 off travel expenses after meeting minimum spending requirements. A husband and a wife could each get one and knock $880 off their vacation bill.
Some bonuses can be received multiple times, some only once. With a bank like Chase, it's usually one per card/per lifetime. That's why it's very important to get the very best offer. However, if the card changes, you can usually apply for it again.
Tools and Tracking Information
1) Create a spreadsheet so you can keep track of the dates when you applied for the new cards as well as minimum spending requirements. When the terms say you have to spend $1,000 in 3 months, the clock starts on the day of your application, not when you receive the card. You can also sign up for a free account on www.cardwatchdog.com that will track it for you.
2) Sign up for an account on www.mint.com. It is an excellent, free site to keep track of your credit cards as well as checking, savings accounts and CDs. I use it myself and really like it. It's essential to check your credit cards occasionally, especially if you have 30 of them, like I do.
3) Sign up for www.creditkarma.com account, as well as www.creditsesame.com. The first one tracks Transunion credit agency and the second one Experian. I will say that I found Creditkarma to be more accurate. But both are good (and free) tools to estimate your credit score and see changes in your credit history.
I recommend you don't apply for any cards if your score is not around 750 on both. That way, you have a good buffer in case of an unexpected dip.
4) Once a year, you are allowed to access your credit report for free from all 3 credit agencies. You can make sure everything is correct and all your accounts report in good standing. You can access it by going to www.annualcreditreport.com.
5) Sign up for www.awardwallet.com account to keep track of your miles and points balances. Your miles expire when there is no activity for a certain amount of time, usually 18 months. You can avoid it by making a small purchase through airline shopping portal or redeeming miles for a magazine subscription.
6) Even if your credit application is denied, not all is lost. You can call that bank's reconsideration number and try to reverse it by speaking to a credit analyst. I have been successful almost every time I called. Sometimes you can get an approval by shifting the credit from another card that you have with that particular bank.
7) Check www.evreward.com, which compares different shopping portal payouts. Always make sure you get miles, points or cash back when making purchases.
8) Probably obvious, but always collect miles and points by signing up for loyalty programs. Even if it's a small amount now, someday it can make a difference between getting an award ticket and not getting it.