Posted By Caleb | October 2015
My initial reaction to the idea of ‘churning’ credit cards, 4 every 3 months, was rightfully negative. It didn’t make sense and many of my questions revolved around the ‘legalness’ of making this happen. Fortunately the internet can teach you anything and after many free trips, some light reading and a full-on onslaught from Beth, she has me convinced that this is the closest I will ever be to Clooney in the Oceans series. Gaming the system, winking at the perfect time and walking away with millions of…
……discounted airline and hotel miles….close enough.
Below I’ve answered a few of my initial questions from two years ago as to how this is possibly legal, and even encouraged.
Do companies and lenders not care that you are gaming their system?
This is best answered with a quick explanation of how these cards work. Let’s use this example: Big Dan’s Airline wants to acquire more customers at the lowest cost possible. They know that loyalty and points programs are an efficient way to bring in repeat, long term business through low cost incentives. Credit lender A wants to increase the amount of credit and cards they have in the market, to increase profits through swipe/transaction fees, annual fees and interest/late fees. These lenders also see bonus incentives as an effective strategy for customer acquisition but they have fewer incentives people want. Thus the two sides partner on co-branded credit cards. The lender pays a discounted fee to Big Dan’s Airlines for the sign-up bonus miles they will provide, and both sides benefit from what they hope to be a long a profitable relationship with a new customer.
Since the recession this partnership model has only continued to grow. As our generation becomes more reliant on cards not cash, there is huge money to be made on getting their cards in our hands and getting us to use them. Every time you swipe, American Express (for instance) is making money, thus they continue to incentive us to buy things using their card, with hopes it will create a high use, profitable relationship. If you miss a payment or pay an annual fee, it is only icing on the cake.
The airlines and hotels make a ton of money too. So much money you would think my bag could fly for free. In 2013, $27.5 BILLLION dollars of revenue for the major airline companies came through the sale of miles to banks and lenders. They obviously have to honor the points they sell, which does cost money (not very much for domestic flights). But one must infer they wouldn’t have those pleasant Southwest folks out there peddling that credit card in airports across the country if it wasn’t working. PLUS, they have complete control of those points and can devalue, block or mitigate the risk of the liability in a hundred different ways.
It is less likely that airlines are making a ton of money off of those of us using the travel hacking approach. But then again, a few quick reads will lead you to the fact that most hackers are also frequent paid travelers, thus the loyalty they gain from our paid business far outweighs the few miles we are piling in the barn.
Why do companies let you have multiple cards?
The idea of having multiple cards with one company is only a plus for lenders, as mentioned they make money no matter if you are paying your monthly balance off or not. The key to partnering with the lender is applying for another card, not more credit. Commonly we’ll make “reconsideration” calls to talk to banks about adding another card to our line. In nearly all cases, if you are only asking to transfer current credit to a new card, they are happy to oblige. Thus instead of having 3 cards with 40k in credit, you now have 4 cards with 40k in credit and they are potentially getting 4 annual fees from you. As your credit score increases, this process changes a bit as lenders are more likely to loosen their grip and provide you a whole other line of credit.
There has to be a catch….
Where is the hole in this model you may ask? I am the hole. Unorganized dufuses (plural of dufus?) such as myself that would try to work the system and collect cards and miles will inevitably fail. We’ll end up missing payments, paying interest, doubling up on annual fees, signing up for cards but not hitting the need spending amount, I can go on…. Thus they are taking the risk that the dufus population is high enough to make this worth it.
For this approach to work you must have a couple things:
- 1 organized person
Just one, if you are a couple, the other just needs to be able to pour the drinks and lighten the mood with well timed travel/points puns. Lucky for me, Beth is uber organized and handles all this.
- A dedication to travel and the willingness to put the time in
This takes a ton of time, especially if you are scaling it up to multiple trips. If you are just planning one trip it becomes much more feasible.
- A spreadsheet to track all of it
A excel sheet, a word doc, a trapper keeper, something that can hold some words and numbers.
- A plan of where you want to go
Things become MUCH easier if you are collecting points for a specific trip or location. Collecting just to collect makes you a hoarder…don’t be a hoarder
Without these things you’ll hit the catch. You will end up paying more than you should for the miles, dealing with the “blackout” dates that come up with late/random trip booking and you will garner a general disdain for airlines. The airlines are banking on you not being able to rise to the occasion with all 4 of these, and thus their profits will soar…(…I am aforementioned pun provider)
Pulled a couple stats from: