Today we'll learn about the different ways you can earn lots and lots and lots of points and miles, and how you can set yourself up to do so. First, an overview of the various methods:
1. "Butt in seat" miles
American, British Airways, Delta, United, U.S. Airways, most other airlines
Every time you fly (unless you're using miles to do so), you earn miles. The number of miles you earn is equivalent to the distance you fly.
Seattle to Dallas - 1,660 miles
Example 1: Nonstop travel
Seattle to Dallas = 1,660 miles
Number of miles you earn = 1,660
Example 2: Layovers
Seattle to LA = 954 miles
LA to Dallas = 1,235 miles
Number of miles you earn = 2,189 miles
Not only is traveling with stops cheaper, it also earns you more miles! Oh man!
2. Fare-based miles
Southwest, JetBlue, Hotels
Some airlines don't really care how many miles you fly, they care how much you pay them. Kinda makes sense if you think about it. My guess is most airlines are going to start moving in this direction. Hotels give you points based on the rate you pay for your stay. For airlines though, just Southwest and JetBlue do this.
Example: Southwest
Seattle to Dallas (June 12) = $110 + taxes
Number of miles you earn = 660 (6x fare)
This is for Southwest's most basic fare, "Wanna Get Away." Higher fare classes such as business class earn a higher multiplier. JetBlue also earns 6x fare for basic fares if you book online.
It may look like you earn less points flying Southwest than you would with another carrier, but on the other side when you redeem miles the number of miles required for Southwest is based on the fare, and is not set at a tier level like the other airlines. That one-way ticket to Dallas would cost 12,500 on other airlines, but it costs 6,600 on Southwest.
3. Credit cards
Very few of us are lucky enough to fly on business, so flying flights to earn miles doesn't really fit into our budgets. It's also incredibly time-consuming to do it just for earning miles, something called mileage running. But fortunately there exists a product called the credit card. There are two ways to earn miles via credit card.
Per-dollar miles
If you have a Delta SkyMiles card from American Express, you earn one SkyMile for every dollar that you spend. Spend $25,000, you get 25,000 points, enough for a free roundtrip ticket within the continental U.S.
Signup bonuses
Most airline credit cards come with an offer to get a bunch of extra miles when you apply for the card. It might say something like "Earn an extra 25,000 bonus miles after you spend $1,000 in the first 3 months of card ownership." This is the key to earning more miles than you can fathom what to do with.
We're going to get more into how to sign up for credit cards and earn all those points from signup bonuses later. For now, there are some things you should do to make sure that you're eligible to sign up for credit cards.
A word of caution and interesting credit card facts
Credit cards can be your best friend or your worst enemy
Credit cards are fickle creatures. On the one hand, they come with these lucrative signup bonuses that, if earned correctly, can get you lots of points for no additional spending on your part. Separately, they can be great sources of credit-building. A good credit score is one of your greatest assets, and will help you rent an apartment and get a good rate on an auto loan or a mortgage later on. For me, I have upwards of 20-25 credit cards and have an incredible credit score because I manage my spending and keep track of all of my cards very well. Having a lot of credit is very good for your credit score, as long as you are spending wisely.
At the same time, if you don't manage your spending well, credit cards can open up the floodgates. It is like having lots of extra money. Except it's not like a debit card or cash where when you run out you can't spend any more. Credit cards, until you reach a certain limit, will let you keep spending, regardless of whether you have enough money in the bank to pay it off. And when you don't pay it off, your credit score takes a HUGE hit. Even worse, you get charged exorbitant interest. Annual interest on a credit card for unpaid bills can be as high as 25%.
If you're the kind of person who doesn't keep track of their spending well, my advice is to avoid credit cards. They will end up being more of a problem for you than they are worth. But if you are good at keeping your spending low and managing your finances, and/or if you already have a credit card that you've been paying off on time and haven't had any problems such as late payments, then read on.
Giant myths about credit cards
1. Having lots of credit cards is bad for your credit score - MYTH
Having lots of credit cards is GOOD for your credit score. Your credit score is made up of multiple factors, but two big ones are 1) the number of accounts you have and 2) the total amount of credit you have. Having lots of credit cards is a positive for both of these.
2. It is hard to build good credit - MYTH
It is very easy to build good credit. Even signing up for a basic card with no annual fee and putting it in a drawer and never using it will help your credit. In fact, if you're in college and don't have any credit history, that's exactly what you should do.
Some credit card terms
Statement - At the end of each month you will receive a "statement" from your credit card company with the amount you owe them for your spending. The amount you owe is your total spending minus what you have already paid off.
Grace Period - From the day your statement arrives, you have 21 or more (depending on the company) until your due date. You must pay off your statement balance during this grace period, sometime before your due date. If you wait until after your due date, your credit card becomes "delinquent," meaning you get a bad mark on your credit score, and you are charged interest starting retroactively from the day the statement came out.
Annual Fee - Some credit cards charge a fee once per year for having the card. Most credit cards discussed here will charge an annual fee, but not for the first year. Annual fees can really eat away at the value of the points you earn, so you want to make sure to cancel a card before an annual fee is due. If a credit card has no annual fee, there is no reason to ever close it, as closing a credit is temporarily bad for your credit score, and keeping it open and paying it off completely is very good for your credit score.
Credit Score - Your credit score is a number between 300 and 850 that lenders, including credit card companies, look at to see how good of a customer you might be. The higher your score, the better. A good score is 700+. Information on your credit score stays there for up to seven years. My advice for signing up for credit cards is that your score should be at least 700, and it should be 5 points above 700 for every card you want to sign up for.
Credit Bureau - Your credit score is tracked by three different bureaus: TransUnion, Experian, and Equifax. Your score with each bureau is likely to not be exactly the same, but should be at least similar to the others. When you apply for a loan, including a credit card, the lender will check with at least one of these three bureaus to see your credit score. Every month when your statement comes, your credit card company sends the statement info to the credit bureaus. If you pay it off, that's good for your credit score. If you don't pay it off, the credit card company sends more information to the credit bureaus letting them know you're late. This negatively affects your score.
Hard Inquiry - This happens every time a lender checks your credit score with a credit bureau. If Citi and Chase both check your TransUnion credit score, then you will have two hard inquiries on your TransUnion score, but none on the other two. Hard inquiries are bad for your credit score, and stay on there for two years. If you have too many inquiries, credit card companies won't approve you for cards.
Prerequisites to signing up for credit cards and earning lots and lots of points
Here is a to-do list for you:
1. Sign up for a Mint account
This free account lets you track all of your bank accounts and credit cards in one place. I check mine every morning to make sure there are no transactions I don't recognize.
2. Sign up for CreditKarma and CreditSesame
These two sites track your credit score with two of the three credit bureaus. They're absolutely free. CreditKarma lets you update your score once a week and CreditSesame lets you update it once a month. You should always be keeping track of your credit score to make sure that it is in good shape and there aren't any fraud problems or other concerns.
If CreditKarma and CreditSesame don't show a credit score or can't find your information, it means that you don't have any credit history. You should sign up for a very basic card to start building your credit. We can get into that in a later post.
3. Sign up for all the mile and point programs!
United
American
U.S. Airways
Delta
Southwest
AirTran (good for getting the credit card while it still exists)
British Airways
Alaska
Hawaiian (good for converting into Hilton points even if you don't like Hawaii)
Hilton
Starwood
Marriott
Hyatt
Priority Club (Intercontinental, Crowne Plaza, etc.)
JetBlue
4. Sign up for AwardWallet
AwardWallet lets you keep track of all of your (recently signed-up-for) miles and points balances in one place. Some of the airlines have blocked the site from automatically updating your mile balances, but you can still manually update them on AwardWallet.
Please post in the comments if you have questions!
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