In 2003, I started a video production company on my own. I was barely 2 years out of college, and had no business experience or training whatsoever. I was very green. In order to fund my venture, I got a bunch of credit cards, maxing them out pretty quickly. I was desperate, and when I realized that I was in way over my head, it was too late. I had destroyed my credit rating. To this day, I’m still trying to recover. If you’re in the same boat as me, you do have some options, but it’s going to take some discipline and hard work.
Without going deep into how to restore your credit rating, there are ways you can start to rebuild your credit score while earning travel points. But there are a few things you need to bear in mind when using these methods, or you could end up right back where you started.
MAKING IT HAPPEN
I am not an expert in credit related stuff, so take what I say as just friendly advice. Do your own research and consult with a financial expert before making any big decisions.
The first step is owning up to your past mistakes, and taking responsibility for them. It’s easy to remain in denial about your situation, which will only make things worse. And if you want to spend time traveling for free, you’ll have to show that you can be responsible with these tools. In my twenties, I was not responsible with them, and so I fell into severe debt. This negative stuff stays on your report for 7 years, so not getting into this mess in the first place is ideal.
Be prepared, because if you have a bad score, you may not get approved for a card, or you may end up with a high interest rate. If that happens, don’t give up on yourself. Just work harder toward fixing the problems.
If you’ve decided to go ahead and get yourself a credit card, this is the time to do some planning. First, make yourself a monthly budget. There are tons of ways to do this, and a quick internet search will lead you to several budget templates. Fill in the numbers and see where you stand.
Next, decide what types of purchases you’ll use the card for. Some types of purchases earn you more or fewer points, or none at all. Do your research on each card, keeping in mind your ultimate goal (i.e., earn points & rebuild credit).
Finally, pick only one or two cards to apply to. Each time you apply for a card, the credit card company checks your credit report, and while it’s not crazy detrimental, companies will notice if you’ve applied for a ton of cards at once.
Some financial people will say that you should keep a small balance on your card each month, accruing interest and keeping your card in good standing. That’s one plan, but it can also be dangerous if you don’t feel comfortable in your discipline yet. If you’ve budgeted correctly, and you’ve used your credit card wisely, then you should be in good standing by the end of the month. Be consistent in your payments—something credit card companies like—and you’ll be well on your way to rebuilding your credit and earning free travel.
Additionally, set a date with a reminder on your calendar to let you know well ahead of time when your payment is due. Try to pay it in full each month.
Rewards or Brand Loyalty credit cards are promotional credit cards that offer you various “rewards” for using the card. From airline miles, to hotel points, to cash back, each card has drawbacks and advantages. There are some really great “travel hacking” sites out there that go more in depth on finding the right card for you.
Right now I’m looking into two different rewards cards, which I plan to use to cover my honeymoon to Disney World next year. Fortunately, there are tons of ways to save on a trip like this, including credit card rewards programs. For Disney specific stuff, I’m looking at Disney’s own Visa rewards card, which offers up several different types of rewards, from discounted or free Disney items, to credits toward Disney park tickets, resort stays, restaurants, and even airline travel. Disney has two cards: Disney Rewards Visa Card and the Disney Premier Visa card. The Premier card offers more, but there’s an annual fee that just might be worth it if you plan to use the card a lot.
The other card I’m looking into is the Chase Sapphire Preferred card. With this card, you get 2x points on travel and dining at restaurants, 1:1 point to dollar ratio on other purchases, and a bunch of other perks. The great thing about this card is that—at the time this post is published—they have a 40,000 bonus point offer just for signing up and spending $3000 in the first three months. If you use this card for all your purchases and bills, you can rack that up pretty quickly. There’s no fee for the first year, but be warned, it jumps to $95/year after that.
There are two things to always keep in mind when applying for and using credit cards: your budget and the Annual Percentage Rate (APR). You should think of your credit card like a check card. Check cards pull funds directly from your checking account, so you can’t spend more than what you have in the account. When you’ve created your monthly budget, you should have a set amount available for spending during the month. Don’t go over this amount, and you’ll be able to pay off your bill in full each month (or twice a month, as some financial experts recommend).
You’ll also need to account for accrued interest on your account. When you apply for a card, the card will have what’s called APR, or Annual Percentage Rate. This interest accrues on any debt you owe to the card company (that is, any charges you make with the card). If you pay your bill on time each month, you won’t accrue more interest than is necessary. But if you only pay the minimum balance due, you’ll start racking up interest charges pretty quickly.
If you do all your research and still don’t feel comfortable applying for a rewards credit card, just don’t do it. But if you’ve done your homework, prepared your budget, and feel that you can handle the responsibility of rebuilding your credit, getting a rewards card may be a good way to get yourself back on track and earn some free travel a the same time.