Friday, March 12, 2010

Bonus Stacking: The Basics

I can't claim credit for the idea, but I can claim credit for the term.
Bonus stacking.

It's the art of combining credit card and banking bonuses to rapidly (as in, by next month) earn free flights and hotel rooms. Not only is it completely legal, but in the long term it also helps your credit score.  I started doing this a year ago and have gotten four free domestic flights and a room at a five star hotel in Cancun. In all, I've have gotten well over $1,500 in travel savings for a few hours of effort. I cannot recommend bonus stacking enough.

The gist: in order to attract and retain customers, credit cards and banks offer reward programs. Almost across the board, the points (or miles) in these programs are worth a penny apiece and are usually given for each dollar spent. Which means for every $1,000 you spend, you'll get $10 in value. Racking up the $30,000 in purchases required to enough points for a $300 ticket could take most of us years, which is what the companies want, since in that time you'll likely have given them far more in finance charges and late fees. 
In order to get you going, though, the financial companies like to start you off with a sign-up bonus to lure you in, usually between 5,000 and 10,000 points. With a little organization, you can stack the sign-up bonuses from several cards to immediately earn enough points for flights and hotel rooms.
Here is the nitty-gritty:

1.  You need a decent credit score to even get the cards in the first place. This is good thing in my opinion because if you are bad at managing your credit to begin with, the last thing you need is is a half a dozen bright, shiny credit cards lying around asking to get used. Anything above 650 will usually start you off.  
2.  In the short term, this will hurt your credit.  From the companies' point of view,  if you are ordering a large number of cards, it's because you are about to fund a super-model, cocaine-filled orgy and then off yourself at the end. Or similar. So ordering a large number of cards will ding your score, probably 15-20 points.  Because of this, it is best to order a number of cards all at once, because the next month your score will drop.

3.  In the long term, this will help your credit. A significant bulk of your score is determined by your credit-utilization ratio. This is the dollar amount of credit you have versus the amount that you are using. If you are $9,000 in debt on $10,000 in credit, your score will be lower than if you are $20,000 in debt on $50,000 of credit. So adding another ten credit cards will actually inflate the amount of credit you have (because you are NOT going to start using your bonus stacking cards, right?) and month after month your credit score will go up. 

4.  You can use the credit building thing as an excuse.  I got greedy once and ordered six different American Express cards in a day and they called me to see what was up. I said I was trying to increase my score by increasing my available credit. They asked for proof of income, I faxed it to them and they approved all six cards. Those bonuses got me two free plane flights.

5.  Be organized. A simple spreadsheet program like Microsoft Excel, Open Office Calc or Google Docs (which I use) will do wonders for your sanity. This is because different cards require different hoops to jump through. Some require a single purchase, others require a certain dollar amount of purchases (say $250). Some have annual fees that are waived the first year, meaning you have to cancel them before the year isup. Some post their bonus points in four weeks, others in six to eight. In a future post I will give tips on free finance programs and provide a spreadsheet template to help minimize your Advil use.

And that's about it!  Future posts will cover different programs and how to get the most out of your points.

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