Build Wealth When You Put Your Credit To Work And Develop A Credit Strategy

I think everyone should have some understanding of their credit score. As we pay off debt, accumulate assets and increase our incomes, our credit scores should improve. If you are already debt free and building a portfolio, then you should take the next step to put your credit to work.

As a general rule, I’m not increasing my debt but that doesn’t mean our credit scores don’t have any value. It’s just another tool in the tool belt to increase our incomes, experiences, and assets.

 

What makes up a credit score?

There are five main components that make up the credit score.

They are:

  1. Types of credit
  2. Credit history length
  3. Credit inquiries
  4. Payment history
  5. Debt burden

 

Debt burden and payment history have the most weight. They account for 65% of the total credit score which ranges from 300-850. Thankfully those are the quickest factors to change as well, especially debt burden. You can raise your score if you are diligent about paying down debt.

If you missed a payment or defaulted on debt, then that is going to take longer to fall off the credit report, like seven years.

History length, you can’t do much about except wait. If you are like me and apply to several cards a year, then the inquiries can add up. The trick is to make them count when you have to have a hard credit inquiry. There are several strategies associated with this like applying for multiple cards on the same day or hour even, but I think those are going away or are already gone. Credit information is becoming more and more up to date, especially on the credit card side of the equation.

Approach Credit Utilization Intelligently

Here is an example of how credit utilization can change your score quickly. I don’t carry a balance on any of my cards unless I am using a card for its promotional 0% APR for a certain amount of time (like the Citi card I have now at 15 months). I’ve become more aware of this recently because we are doing some remodeling and I got a credit card with no interest on purchases until summer of next year. I wanted to float some of the remodeling costs and allow some of our savings to keep earning interest. Plus, I know everything going on this card is going to the remodel and that helps me keep track of the spending for the project.

Build Wealth When You Put Your Credit To Work And Develop A Credit Strategy

One credit tracking service has my score at 750.The other has it at 818. The main difference is the debt burden. On Transunion, we are carrying 1% of our balances and that is only because I didn’t pay them off before the closing date. They haven’t recorded that new card.

Build Wealth When You Put Your Credit To Work And Develop A Credit Strategy

On the other score with Equifax, it is showing the promotional 0% card where we made several purchases and haven’t paid them off due to the 0% promotional rate. The 68 point difference can be pretty substantial, especially if you have other things on your file that can ding your credit.

Build Wealth When You Put Your Credit To Work And Develop A Credit Strategy

The reason I tell all of this is so you know where you stand when you are applying and using rewards and cash back credit cards. This is one of the fundamentals in Baby Steps for High Income Parents.

Track Your Own Score

Once you know your credit score, you are prepared to develop your rewards and cashback credit card strategy.

I use creditkarma.com to track my score and check it periodically to make sure that no new incorrect credit charges have appeared on my report. There are several other services and most other credit cards provide you with free monthly credit score updates. Credit scores used to be a mystery and people would get a “gotcha” moment when they go for a car loan or a mortgage because they weren’t readily available or you had to pay for them.

That isn’t the case anymore. If you don’t know your credit score, you just aren’t trying. If you don’t know it, log into one of your credit card accounts and I bet there will be a tab you can click to see what your score is.

Here is one from my Bank of America card.

 

Build Wealth When You Put Your Credit To Work And Develop A Credit Strategy

 

If you don’t have a cash back or points rewarding credit card, then my first question is “Why not?”

Second, you can sign up for a free credit monitoring service account like creditkarma.com and find your score within minutes.

Developing a Strategy

The main reason we develop a credit card strategy is to improve our travel opportunities. There are so many advantages for parents when it comes to traveling. It gets you out of your routine or a temporary rut. It gives you opportunities to see new and interesting places. Your kids get to see new places and have expanded educational experiences.

For me, the best part is focusing on each other. We don’t have a house to clean or a project to complete. We pack everything we need in a few suitcases and that is all we have to manage for the few days to weeks we are gone.

It’s like a little dose of minimalism.

If traveling isn’t your thing, then the cash back rewards strategy could be for you, but regardless, if you aren’t routinely applying for cash back or rewards cards with bonus points awarded after an initial spending requirement, then you are leaving money on the table and the potential for several amazing life experiences.

 

Which Rewards

If you have a larger family like me and have done any research in this area, then you probably already know that it is difficult to put together a bunch of reward flights, several hotel rooms and get everything to coordinate well.

A lot of airline rewards and hotel rewards don’t really cater to the family. I get emails from professional traveler blogs that alert me to a great fare or a bonus on reward flights. Nine times out of ten there are only one or two seats available. I need a way to use the points we earn to help all of us.

I’ve found a few of the rewards programs to be especially useful for the mid to large size family.

 

Go-To Cards

Our American Express Old Blue Cash helps us earn 5% back on gas, grocery, and pharmacy. (might need to use incognito browser to see card)

Our Chase Ink business earns 5% back on Office supplies, internet service, and cell phone bills.

Chase Sapphire Reserve earns 3% back at restaurants and for travel.

Everything else earns 2.625% back on our Bank of America Travel Rewards card.

(These aren’t affiliate links, I just use these because they really help our family and maybe they can help your’s too.)

 

Are Rewards a Waste of Time?

I don’t think so and here’s why.

Let’s say I want to buy 7 tickets to Denver for my family. That would cost $1,400. In order for me to have $1,400 in my checking account I actually need to make $2,300 before taxes. In order for me to make $2300 since we collect about 1/3 of what we bill, I would need to bill $6,900. For me, that is still a substantial amount of work even with a high hourly rate.

I consider reward travel research to generate passive income. First, we do the research to maximize rewards that are beneficial to our family situation. Then we just keep doing what we always do regarding everyday spending. Even if you have five or six different cards, it’s just a matter of knowing the stores to use each card.

If it gets too complicated, you could use a spreadsheet to keep track of the different accounts. This mainly comes in handy when keeping track of the spending requirements for the initial spending bonus offer. Keeping track of each category is a small amount of work compared to the hourly wage required of some professionals, including me.

 

What’s the catch?

You may be saying,

Yah, but if everyone did this, then wouldn’t it go away.

Maybe, I don’t know. There are people making a career out of publishing offers and showing people how to do this. It’s all over the internet and there doesn’t seem to be a slowdown of the rewards. One thing will go away and another pops up the next day.

I have to believe the credit card companies are making a killing or they wouldn’t keep offering the opportunity to travel for reduced or zero fares. The fact is the credit card companies are betting the average person will probably screw this up. They get a brand new shiny credit card and run up a bill. That 29% interest will negate any rewards you earn really quick.

 

Don’t be average!

A lot of high income earners probably think it’s not worth their time to deal with it, but like anything else, putting in some effort and developing a system up front will lead you to reap benefits for years to come. Especially with our high tax rates, this type of tax-free income is hard to beat.

Analyzing the systems that are in place and using those that mesh with your travel style and family budget can lead to many more family adventures than if you were paying for the trip completely out of pocket.

We’ve used these techniques to go to Hawaii, Skiing in Denver area multiple times and Smugglers Notch Vermont, San Fransisco, Washington DC, Costa Rica, Grand Cayman, Cozumel, Jamaica, Yellowstone multiple times, Boston and Orlando. We haven’t ventured outside the United State much yet, but as the kids get older, we hope to remedy that.

Not every one of these tips was completely paid for, but our vacation budget goes a lot longer way with the addition of these reward techniques.



We’ve used Priceline plenty of times to get some great deals. It’s usually worth a look.


I just want to encourage you to look into these strategies. Some of my favorite sites are:

Put some time in and see if you can reduce travel costs and get more time with you family while visiting amazing places.

 

 

Tom
Tom is a doctor, husband and father of five with a passion for parenting and finance. When he isn't skateboarding, riding BMX, or jumping on the trampoline with his kids, he is reading and writing about personal finance. He helps high income parents educate and mentor their kids to become financially, emotionally, and intellectually self sufficient.

12 Responses to “Build Wealth When You Put Your Credit To Work And Develop A Credit Strategy

  • I was just listening to the ChooseFI podcast the other day and they were discussing credit card travel hacking. Mr. Adventure Rich and I use credit cards and have taken advantage of intro bonus points in the past, but I realized that it may be time to check back in on this! We both have good credit scores and do not intent to make big purchases (already have our house and used cars…), so opening a new card for some points sounds good right now!

    • I mentioned the fact that you could be leaving thousands of dollars behind if you don’t apply for a couple cards a year and get the sign on bonuses. It adds up and the decrease in credit score is minimal and temporary.

      Tom @ HIP

  • It really is something that requires little time for a big reward.
    I love how you pointed out the tax-free benefits and how much more you would have to make to have the same amount of cash to spend on travel. It really does make them even more valuable for the HIP.

    • When you start figuring out how many billable hours that vacation really costs us, it makes more and more sense to read a bit about the rewards credit card system and implement some of the strategies.

      Tom @ HIP

  • Credit is one of those must have’s but rarely do we pay attention to. Even when you are paying your bills on time, your credit score can randomly decrease just because of the lack of credit you are managing. A review of one’s credit should be performed just as much as we analyze our net worth.

    When it comes to points, there isn’t a better game in life to play. Why go through life paying for everything and not get something in return? Once you reach different vendor status levels (e.g. Marriott’s Platinum Elite), the points start compounding. Then you have affiliate partners where you can start double dipping – for example, my Amex Rewards card provides me with 2x the points when purchasing directly with an airline. At the same time, the airline drops ‘miles’ in my account for future flights.

    With the right point system, you can save quite a bit of money in your life.

    Great topic, Tom!

    • Very good points. I didn’t include it in the post but you are already going advanced on taking advantage of doubling points with transfers.
      I’ve done that a few times too. I like the idea of building up a variety of points and then transferring when specials come up to maximize the savings. It takes a little more time and paying attention though.
      Really good point about paying for everything regardless. If we aren’t getting a discount, we just aren’t trying. 🙂

      Tom @ HIP

  • We probably pull in 3-4 k tax free via card sign up bonus with no impact on out score. I can tell you it’s not mainstream though. When I occasionally bring it up in real life most look at me like I have 2 heads.

    • I agree. I’ve had a couple people come ask me about rewards and travel card because they heard I’m the travel points guru (far from it!). Once I explain a few concepts their eyes glaze over and I say good luck.

      Tom @ HIP

  • I have a single credit card – Barclay Mastercard Arrival +. I dont remember all the reasons I got it a few years back. 50K miles at signup is one. When reading your post I thought this most pertinent.

    “A lot of high income earners probably think it’s not worth their time to deal with it, but like anything else, putting in some effort and developing a system up front will lead you to reap benefits for years to come. Especially with our high tax rates, this type of tax-free income is hard to beat.”

    I sometimes forget to think of the pre-tax income when it comes to spending on vacation because i just want to get away and just ballpark the cost. But you make a good point that some upfront work can save a lot over a liftime. I will use the links in your post to browse a bit and see if its worth the time. For now, one card for rule them all, on card to bind them.

    • If you get a free day just sit down and look at some of those sites. Within a week you could have a couple more cards that maximize your rewards.
      I used to use the Barclay Arrival for my everyday spend but their travel rewards aren’t as good as the BOA travel rewards card, especially when you have preferred honors status.

      Tom @ HIP

  • I’m a big fan of travel credit card rewards. I’ve got the Chase Sapphire Reserve as well. I like the IHG credit card as well: for the annual $49 fee, you get one free night anywhere in the world (no restrictions).

    -WSP

    • I remember the post you wrote up about the IHG card. I plan on getting some hotel based cards next year. We are taking a break on a lot of travel this year, but they might come in handy next year.

      Tom @ HIP

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