Step 4 is where things get serious.
Armed with a 787 credit score across the board, no credit card debt, the realization that living for 30 years at one residence is not within the cards, and abiding by the oath to never hoard points, you are ready to move on to Step 4: The First Churn.
First, please read the following disclaimer (taken from the book of course):
#ThePointsOfLife Legal Disclaimer: Only those that are disciplined with their finances should partake in this hobby. Otherwise, you may find yourself submerged in credit card debt, staying for free in a double room that will certainly not have a view of the ocean but may have a complimentary gym.
Copyright 2014 #ThePointsOfLife™. All Rights Reserved.
Question 1: What’s the fastest way to earn points?
– Answer: By applying for credit cards with sign up bonuses, meeting the minimum spend requirements to obtain those bonuses, then strategically shifting your spending habits to the cards that earn the most valuable points per transaction*.
o What is a minimum spend requirement?
- Cards require you to spend a certain amount of money in order to receive the bonus. Sometimes it can be $3000 in 3 months, other times it can be 1 penny!
- Note: If the card charges an annual fee up front that fee does not count towards your minimum spend.
*We will cover which cards are great for what transaction at a later time. For now, just know that the fastest way to earn points is through the initial offer. After that, it is common to never use that card again.
Question 2: How many cards do I apply for?
To begin, let’s presume that you have a limitless budget. Holding budget constraints as a constant, here is what you do:
– Apply for one credit card per bank per churn.
o What is a churn? A churn is the process of applying for multiple cards at a single time from multiple banks in order to accumulate tons of points.
o What are the major banks with the best credit card offers?
- American Express
- Bank of America
- U.S. Bank
- There are others including Capital One and Discover but for now I am going to focus on those with the most lucrative offers.
– Apply for all those cards on the same day. Why?
o Banks do not like seeing a lot of credit inquiries on a credit report. It tells the bank that lenders are extending you credit thereby increasing your probability of default.
o In order to maximize your chances of approval, apply for all the cards on the same day. Credit reports are not in real time so there will be no way that Bank A knows that you also applied for credit from Bank B and C. If you apply for multiple cards on multiple days, it is more likely that Bank D will see that you applied for credit from Bank A, B, and C.
- While you still may be approved by Bank D, it isn’t worth the hassle of explaining to the bank why you are applying for so many cards.
Now, let’s presume that you are like most of us and have set budget constraints. Again, the question is how many cards do I apply for?
– Answer: Do not apply for cards with minimum spends outside of your budget.
o No points are worth getting into credit card debt. (See Step 2)
o No points are worth making a purchase that is not within your normal spending habits.
- Example: I don’t really need a new 70” LED TV but I do have to hit this minimum spend. Yes, I can rationalize that this is a normal purchase.
- No you cannot!
o Shameless book plug again: If meeting the minimum spend requirement is outside your everyday budget, spread your applications out over a longer period of time. But, if you are impatient like I am, then adding a trustworthy authorized user to do the spending for you makes the process more practical. Special thanks to my sister Rima and her love of fine shoes and purses.
Question 3: The rush from all these approvals is so much fun! When can I apply for cards again?
– Answer: The rule of thumb is to spread your churns out over a period of 90+ days. Why?
o Reason #1: Each bank has its own set of rules for how many cards you can apply for during given time period. The 90+ day rule should cover you.
- Personally, I have followed that guideline and have never been rejected for applying for another card too soon.
- I will get into the specifics of when you can break this rule at a later time.
o Reason #2: Your credit score drops per credit inquiry.
- Remember those 6 cards you applied for (one per bank)? Each application resulted in an inquiry on one or more of your credit reports: Experian, Equifax, or Transunion. Credit inquiries initially lower your credit score by 1-2 points per inquiry. That is not a good thing. (See Step 2: FICO graph.)
- But, ironically, after you receive those cards, meet the minimum spend, and pay off the balance in full (See Step 1: Credit Card Debt Not Allowed) your credit card may actually rise higher than where it began.
- Your credit score must recover to or surpass where it began before commencing the next churn.
While I apologize for all the long, drawn out steps, I assure you that there is a learning curve for this process and only by implementing a ‘slow and steady’ strategy will you save yourself from messing up your credit, being overwhelmed by minimum spends, and ultimately missing the point of collecting points.
Onto Step 5: It’s time to decide which cards to apply for by laying out a strategy of where you want to go, how you want to get there, and how much luxury you require in order to get a good night’s rest.