Can Travel Hacking Hurt Your Credit?
Travel hacking might help you save money on travel expenses. But how could it impact your FICO® Score?
Photo by Asad Photo on Pexels
With the holidays fast approaching, you may be looking for ways to save on travel expenses. Travel hacking—using credit card rewards to get low-cost or free travel—could be an enticing option. But if you're considering this approach, it may be important to understand how applying for, opening, and using new credit cards can impact your FICO® Scores.
Applying for Credit Cards Might Hurt Your FICO® Score
Travel hacking often requires opening multiple credit cards to earn intro bonuses and get other cardholder benefits that you can use during your trips. The exact impact on your FICO® Score will depend on your overall credit profile. However, applying for multiple cards can hurt your score in several ways:
New Hard Inquiries
Each credit card application can lead to a new hard inquiry, which may decrease your FICO® Scores—even if you aren't approved for the new cards. Many of the best travel credit cards also require good to excellent credit. (You can use myFICO to check your FICO Scores and reports.)
Some credit card companies let you submit a credit card preapproval with a soft inquiry, which can help you determine which cards you can likely get without impacting your FICO® Score. However, card issuers may have additional restrictions. For example, regardless of your FICO® Score, you might not get approved for a new card if you recently got a card from the issuer.
Lowering the Age of Your Accounts
The length of your credit history is another FICO® Score factor. Opening new credit cards will decrease the average age of your credit accounts, which may lower your FICO® Score. However, the negative impact could lessen as the accounts age.
Managing Your Travel Cards
The majority of your FICO® Score depends on your payment history and how much you owe. While the hard inquiries and a lower average age of accounts may hurt your FICO Scores a bit, how you manage the cards could be more important in the long run.
When travel hacking, it may be tempting to spend a lot of money to meet an intro bonus's minimum spending requirement and to earn more points or miles. But a high balance can increase your credit utilization percent—even if you pay off your bill in full each month—which may hurt your FICO® Score. Plus, if you wind up carrying a balance, the interest you pay could cost you more than you earn in rewards.
Also, if you're not used to juggling multiple credit cards and accidentally miss a payment, you could be charged additional late payment fees. Once your payment is 30 days past due, the late payment can also be reported to the credit bureaus and hurt your FICO® Score.
How new cards may affect your FICO® Score over time:
- Make your minimum payments by the due date. Setting up alerts or autopay on your credit cards could help. You may also be able to change your credit cards' payment dates to make it easier to remember when the bills are due.
- Pay down your balances early. Credit card issuers generally report your card's balance around the end of each statement period (often, a few weeks before a bill's due date). If you're using your credit card to earn points and miles and don't want the high balance to lead to a high utilization rate, you may want to pay down the balance early.
- Keep your other cards open. Closing credit cards can decrease your available credit, which may increase your utilization. You may want to occasionally use the cards as well, or the card issuer may close them due to inactivity.
Even if you responsibly manage the cards, opening multiple credit cards could hurt your FICO® Score at first—particularly for people who are new to credit. If you're applying for an auto loan or mortgage soon, you might want to put a pause on travel hacking until after you get the loan.
Picking Your Next Credit Cards
When you want to use travel hacking to save money, researching which travel credit cards to get can be an important first step. It may be best to only apply for credit cards that you'll likely get based on the card issuer's rules and your FICO® Score. Also, learn about the pros and cons of each rewards program to determine which card—or cards—are best for your situation.
Louis DeNicola is a finance writer based in Oakland, California. He specializes in consumer credit, personal finance, and small business finance, and loves helping people find ways to save money. In addition to FICO, Louis works with a variety of financial services firms, credit bureaus, and educational websites, including LendingTree, Credit Karma, and Experian.