Talking about credit scores and updating your understanding of common credit practices is “incredibly important,” Brady Yu, a co-founder of TripPlus recently had a conversation with a college student, Ava Lee. In the following eight weeks, we will unlock their conversations about credit and award travel that are laser-focused for our young professionals new to the workforce, recent college graduates and students, and even newcomers to the States!
Let’s start with hot one – “Ten common award travel myths, debunked.”
Myth #1: Credit score is not important to a college student.
Credit reports determine whether you are reliable! The banks make decisions on whether to offer you a credit card, auto loan, or a mortgage. Your landlord can use this to check if you are a good tenant or not.
Remember the components that make up your credit score: Payment history + amount of debt + length of credit history + amount of new credit + credit mix.
Myth #2: Applying for a credit card and loan would hurt my credit score.
What matters are 1.) On-Time Payment and 2.) Length of Credit History among the other credit score components.
Not Credit card, auto loan and mortgage themselves.
It is common among young professionals, college students and even US newcomers to have a low credit score in the beginning. Remember to work on the length of your credit history by opening your first credit card as early as possible and keep it.
You can start at the age of 13!
Myth #3: A secured credit card would effectively build my credit score as a beginner.
Both regular and secured credit card applications involve a “hard pull” on your credit, which lowers your score.
And secured cards usually have low credit limits, so if you max out your limit, it impacts your score significantly, especially if your credit history is short and you have few cards.
Myth #4: Credit cards earn me free travel.
Credit card rewards exist to encourage you to apply for and use the credit card, and they’re very persuasive indeed. The rewards come in two forms:
- Welcome bonus – the points you earn when you sign up for the card.
- Spending rewards – the points you earn when you make purchases.
The principle is your credit card earns you “free” travel. With a welcome bonus and simple flat-rate card that pays the same amount on every purchase, you can get back “rewards” of every dollar you spend, either as cash or as points or miles to redeem for travel or other things.
Some cards pay higher rewards in specific spending categories, such as groceries, gas, or restaurants. Combine a handful of cards, and you can amplify your rewards considerably.
Myth #5. “One-card-fits-all” works for me as a busy young professional.
Let’s ask yourself – what your travel objective is. This is a determining factor for which credit card you start with to earn a travel award. For example:
- Save some out of pocket money to spend on activities –> Cash rebate card
- Free ticket to Hawaii / Europe –> airlines mileage reward card
- Free accommodation during road trip –> hotel points reward card
Remember there is no one-card-fits-all. Nor “all-you-can-get” – this would only hurt your credit score with unlimited hard pull inquiries.
Myth #6. My friend’s best card is my best card too.
Here’s the deal with picking a winner:
Rule No.1 is to see if the card’s Welcome bonus aligns with your goals.
- For example, if you’re skydiving or car rental costs $250, a card like Amex Blue Cash Everyday® Credit Card can earn you $250 by spending $500 monthly for six months.
Rule No. 2 is to focus on how the card helps you score spending rewards.
- If you cook a lot, grab a card with supermarket bonuses like Amex EveryDay® Preferred Credit Card. Look for a restaurant rewards card for dining out, such as Chase or Capital One.
Myth #7. Miles and points travel hacking are time consuming.
Again, it is a Yes and No answer.
Award travel (a.k.a. travel hacking) can be complicated and very time-consuming, which is why you need to start small. It is a year-round process, a sort of lifestyle you choose to adapt.
Award travel unarguably is tempting, in a good way. Imagine stayed at Intercontinental Park Lane in London at one tenth of the room price; spent a weekend in Japan with the award redemption almost free – all these really get you thrilled! Just make sure you pay your credit card in full every month.
Myth #8. Only airlines co-branded credit card can help me with the free travel.
An airline co-branded credit card is a great way to start with airlines’ perks and benefits. However, most airline cards, like United Airlines (UA), don’t offer as many points for everyday spending.
Cards like the Chase Freedom Flex® Credit Card can give you more points for your regular purchases, so it will be a faster way to rack up rewards. So, while the airline’s co-branded card is cool, picking a card that fits your spending is even smarter!
Myth #9. Earning flexible rewards points is no benefit to my travel hacks.
Credit cards come in three main types:
- Cashback cards
- Flexible points cards
- Co-branded cards
The airline’s co-branded card allows you to enjoy airline perks and earn miles for a specific airline only.
On the other hand, “flexible points cards” are flexible – like Chase Freedom Flex® Credit Card. They let you use your points for various purposes from redeeming a cup of Starbucks coffee to airlines award tickets to offsetting your travel bill directly.
Myth #10. Credit card points transfer can be reversible.
ALWAYS ensure there are award seats available for redemption before transferring your credit card points to travel partner mileage.
Remember, you can’t reverse the transfer once you press “transfer” button.
Next week, Brady and Ava will talk about five credit cards to build the credit score as young professionals, college graduates and students (and even those new to the U.S.). Stick around!
[…] We hear a lot of stories from newcomers about how difficult it is to get the first US credit card and how frustrating it is when their credit score increases as slow as a snail. There is a myth: Get a secured credit card and your score would increase. […]