Rewards cards for financial independence?
Rewards and other cards with points systems and long lists of benefits can vastly enhance a FI/FIRE plan with the savings and purchase protections that come built in. These cards can also be a ‘nice perks’ part of your financial independence and early retirement plan if used correctly.
Higher-end rewards cards offer an array of nice savings, reimbursements, insurance and other financial protections that someone on a ‘cash’ only budget would not have access to. However, care needs to be taken with any kind of credit and in order to properly use these cards you will need a plan so you don’t get lost in the weeds and end up not getting the sign-up bonus points.
But first, lets clarify what it is we are going to be doing.
Rewards?
Rewards, it sounds great, you use this financial instrument and they ‘pay’ you some kind of ‘points’, ‘awards’ or even cash for your usage. This was originally in the form of airline mileage points but has evolved into all kinds of different point schemes, some of which are good and some are not ‘as’ good.
Lets break down what a “good” points card should have, and why:
- Multiple points per dollar for all spending, or at least a full category of purchases
- i.e. Travel, gas, dining, accommodations) so that you have a way to maximize the points.
- Zero foreign transactions fees.
- ATM overseas can change you $10 and then banks will hit you with another $10-$40.
- Connected to a a service such as an airline or a hotel -or- have the ability to transfer points to a service.
- Most of these have their own portals where you can spend the points, but with a small investment of time you can find amazing deals by transferring points.
- A generous sign on bonus with a $4,000 or less initial spend.
- These are typically two to three thousand.
- A phone app to track the points.
- Purchase protection, this allows you to file claims for theft, damage or loss of property within 120 days of purchase.
- This also works with price changes on items purchased on Amazon, if something you bought goes on sale within 120 days you get the discounted amount if you use an app like Earny (more info in “Tips and tricks” below).ß
Other bonuses which are often included:
- Roadside assistance, it’s basically AAA (in the US) for just being a card holder.
- With this, you can even get rides home if you are too intoxicated to drive up to three times per year. These are Amex, Chase and Citi cards only.
- Rental car insurance, this saves you as well.
- TSA Pre-Check and/or Global Entry reimbursement.
- Pre-check is $75 and Global Entry is $100, Global Entry lasts for five years and pre-check for two. Always go for Global Entry for that extra $15 you have three extra years you don’t need to do an interview.
- Trip Cancellation/Trip Interruption Insurance
- buy a trip with a card and it gets interrupted or you need to cancel it, this can save you a lot of money.
- Extended Warranty Protection
- This one is a bit different but you basically can get an additional year of coverage on eligible purchases with a manufacturer’s warranty of three years or less. So, you buy a warranty and you get another year on it, which means you can save a lot of money.
- Airport lounge access
- A good airport lounge is a godsend when you are traveling. They have dedicated agents just for members who will treat you like a human, they have free food and drinks and the comfort is worth every penny.
All of these things are money savers, it is pretty important to have not just a credit card, but the “right” credit cards in your wallet.
What about my credit score?
This is the primary thing people bring up when discussing rewards churning for free flights and for perks.
So, let’s be perfectly clear: First, this will not wreck your existing credit, it will, in fact, help your credit. Secondly, you do NOT need a super-high credit score to churn miles and use points cards, it does help, but you can get started with low-average credit.
The only real limitation would be actual ‘bad’ credit, if your credit is bad you will need to spend a year or two (re)building it up.
That said, you can start doing rewards cards with a lower credit score (~600-650) and can rapidly increase your credit score with certain cards.
I had a perfect payment history and had a paid off car loan but my credit was still below 700 because I didn’t have the right amount of credit which is a factor that can hurt your credit a lot.
I found out that a credit score has a number of factors and one of those is “Total accounts” increasing this by simply adding more cards is a surefire way to increase your credit score. In my case to increase my score I went with a Chase United Mileage Club card and my credit score jumped up 70 points putting me over 700 for the first time. I still have the card and have gotten a lot of out of it.
Another main point; do NOT close older accounts because a major factor of your score is “Average age of your credit accounts”. You want older accounts which show a long history of being credit-worthy.
The main five ingredients of a credit score are:
- On-time payments (35% of score, high impact)
- Credit usage (30% of score, high impact)
- Average age of credit (15% of your credit score)
- Total accounts (10%)
- Credit inquiries (10%)
Then you can have Derogatory marks, which are external things like collections, bankruptcy, evictions, balance settlements, late utility bills and so on. These can drag your credit score down significantly depending on the type.
Number one is obvious, you can wreck your credit quick by not paying, the others can be confusing, let’s go through each of them.
- Credit usage should be less than 6% (of total credit available) and never more than 30 of total, and should be less than $3,000 on revolving accounts.
- Average age of credit, should be greater than five years and if possible greater than 7. The longer the better.
- Total accounts, they are looking for a mix of about 14 active and closed accounts, (that number I get from Mint, most say from 11-20) which include student loan(s), car or two, house, and a mix of credit cards. This number is geared towards a ‘family’, so two parents each with cards.
- Inquiries is you applying for credit, if they notice you apply for a lot of credit suddenly then that will dip your credit rating slightly.
I am planning to have a full post about maximizing credit, using credit monitoring, repairing credit and so on.
recommended card progression based on credit
Lets look at some potential cards that would be good for each credit range, I am breaking down the credit points by blocks of 50, but typically a credit grade looks like this:
- 740+ excellent
- 680-740 good
- 620-680 fair/average
- 550-620 poor
- < 550 bad
There is a lot of flexibility in this though and you can get ‘good’ credit cards with under 680 with some companies, but Experian counts ‘Good’ as 700-749 credit score, but from my research, the above scale is what is used.
I picked the 50 point ranges just for ease. This is not a hard and fast rule, but for these ranges you should be able to get these cards.
Over 800
If you are over 800 credit score, you can start increasing your credit limits on your existing cards and contact your insurance provider for better premiums and so on. There are a ton of good things which will save you money, from 3.5% mortgages to 0% APR financing. You are effectively zero risk.
700-800 (Solid credit, the home stretch)
Chase Sapphire Preferred
(metal) This is the primary card I would recommend, though you need good on your credit. I keep this in my wallet.
Capital One Venture
(metal) The premiere card for Capital one, with a lot of benefits like 10x miles on hotels. This is on par with the Sapphire line of cards. I keep this in my wallet.
AMEX plat
Great card, great benefits, I always travel with this card.
650-699 (ramping up credit and getting rewards)
Chase United Club
(metal) This card boosted me over the 700 line, the card has a $450/year cost but the first year is waived and you get 50k miles for a $3k spend in three months. The travel benefits of this card are too good to pass up. I still have it in my wallet.
Chase SW Rapid Rewards
40k points after a $1,000 spend over the first three months. This is an easy card to ease you into churning. There also were some free flights, but these have been slowed a bit. There is a ‘plus’ version of this for over 700 as well.
AMEX Starwood
This is a hotel points card, with a lot of hotel benefits.
Chase Freedom Unlimited
Earn up to $500 cash back per year, this is the one to get once you pass 650.
600-649 - (almost ready for better awards)
Chase slate
Still no awards yet at this credit score, but this card will definitely help get you there, it also starts you with Chase which are some of the best points cards.
There are a ton of ‘starter’ cash-back cards at this level to choose from and they change fairly constantly, there are no large bonus mileage cards yet. Check for pre-qualified cards on Capital One here so you don’t get hard-pulls and get turned down.
550<599 (Building solid credit)
Capital One
This is a Capital One “starter card”.
< 550 (rebuilding credit)
Capital one secured Mastercard
Secured cards are for rebuilding credit, I would suggest using one from Capital One if possible. There are other ones available but Capital One is well known.
25% of the population of the United States are in the poor and bad credit group.
other
Vital card
A “social” card where you can get your friends to sign up and you get 1% of what they spend. It’s an interesting idea.
Are Rewards cards right …
… for financial independence and early retirement (FI/FIRE)?
If you are serious about budgeting and want to save money you need to really get to know some of the higher-end cards because for any large purchases they can be a life-saver, and any travel where there are issues (snowstorm etc) they can be the difference between it turning out okay and it being a costly nightmare.
For larger purchases, the purchase protection and the extended warranty protections can save you an enormous amount of money over time.
note: There is a big difference of
a) Buying cheap plastic junk at Walmart with cash to only replace it every other year -and- b) Buying something a little higher end getting miles and having a warranty extended for free on it and also having price protection automatically for if that item goes on sale.Ex: It’s spending $250 on a pair of shoes with a lifetime warranty that you wear for 20 years (total: $250) and spending $50 on shoes every year for twenty years (total: $1000).
To me, this is the differentiator between the wealthy and the poor, it’s 100% about financial education.
… for digital nomads (DN)?
This one is intensely obvious, if any digital nomad is NOT utilizing multiple awards/points programs to the maximum then they are not doing it right.
For a DN or even a frequent traveler, mile churning and the airline lounge access is key.
- Centurion Lounge
AMEX Platinum members get centurion lounge access. There are not a lot of them yet, but they are outstanding. They are comfortable, look spotless, smell awesome and have great food, they are well worth utilizing. AMEX Platinum members additionally have access to about 800 other clubs/lounges in various airports worldwide. - United Club
The Chase card for this is one of my favorite cards just for the access to these lounges and because I fly through United hubs a lot. They are in most every airport that serve United flights now so they are easy to find. Overseas you get Star Alliance lounge access. r>Note: United also recently announced ‘Polaris’ lounges which are for business and first class only, so even with club membership on the card, you need a business class ticket for those specific lounges. - Delta sky club
These lounges are typically on-par with the United lounges and have all the services you would expect.ß
There are others, like Virgin, Alaska airlines and so on. But the three above are easy to get with the credit cards I have listed.
… for real estate investors (REI)?
Running renovations through a card would be an easy way to rack up an impressive amount of points. The rental insurance works on Home Depot vehicles and price protection would work on items that were stolen or damaged at a property.
The credit boost with these cards is also a huge issue as you can get much lower mortgage APR percentages (i.e. seen 3.6% for those over 779). This impacts your cash flow calculations so you can pocket more money.
This is a no-brainer.
FINomad useful Tips and tricks
Automated purchase protection
Earny
If your card has purchase protection, you can automate that protection for any item purchased through Amazon and other retailers automatically, and for the last 120 days. Earny files the claim for you and you just get checks in the mail. I personally get back about $35-$50/month from this service, or about $400-600/year. (bad news for price protections)
MORE Cash back ‘automatically’ on purchases.
Dosh
Let me be honest, I’m still not 100% sure how this works, but I’ll take the money. You link your cards and you are done, this is like getting an additional 10% cash back on dining and travel. I took out two coworkers today for a reimbursable lunch which was $74 and got back 10% via Dosh. If you combine this with a cash back card or 2x travel/dining cards it is some excellent double-dipping.
Free credit monitoring
CreditKarma
This service is amazing and free, breaks out all the factors of your credit and why it is the way it is. It also a credit score simulator that shows you what the effect on your credit will be if you do certain actions.
Automate rewards tracking
AwardWallet
Track all of your awards accounts and points in one place. This is like the mint.com of mileage tracking.
Search engines for awards
AwardHunt
Select your card type and your number of miles and see where you can go for free.
Awardmapper
Show hotels on a map by award points price.
Hotel hustle
Which Hotel can you use for your award points.
AwardHacker
Show different points requirements for A->B travel from all the different programs.
for more info, tips and tools
/r/churning
The churning subreddit, this entire subreddit is devoted to miles and points and way to maximize points, way get free/more points etc.
