Hopefully, if you’re reading this post you are aware of your credit score. If not, you should check your credit at AnnualCreditReport.com for your free government sponsored credit report. The first step to leveraging your credit to get free stuff is understanding your credit score, its current value, and its impacts.
Understanding your credit numbers
The most common credit number is a FICO score. Typically, the score is between 650 and 850. Anything above 760 is considered fantastic. I would not suggest you attempt to leverage your credit for free stuff if it is below 760. Why?
Value of a Credit Score
Your credit score can impact all aspects of your life. The rates you can achieve on car or home loans is directly related to your credit health. However, it can also impact your ability to rent an apartment or even your ability to get a job. As you progress with any ideas, please keep these risks in mind. You can mitigate many of the impacts to your credit score by proceeding cautiously and monitoring the impact to your credit score over time. If you are preparing to submit an application for a loan, apartment, or even a job, I would advise you to delay enacting any of these items discussed below.
Ways to Leverage your Credit Cards for Free Stuff
There are 3 main ways to leverage your credit cards for free stuff. They ramp up in difficulty and impact to your credit score.
Redirect Cash: the Easy Choice to Get Free Stuff
The easiest option is to choose a credit card that provides the best rewards for your typical spend. Observe your existing credit card spending and then search a site like Nerd Wallet for the best credit card rewards return that fits your spending. The risk of this option also exists in all other options. You must use the card only against your existing spending, not to encourage you to increase that spending. If you have true budgetary control then you should shift money from other non card areas to the card, but only do this if you have a good control on your credit card spending as it is easier to spend on a card then in cash. My household spends a lot on travel, as such I personally picked up the Barclay Arrival Plus credit card which provides 2x points on travel spend.
Sign up Bonus: Slightly Riskier Way to Get Free Stuff
The second option is to play with account sign up bonuses. Typically the best credit cards offer cash backs for sign up that can be as high as 500 dollars with the first year membership fee waived. The idea here is to sign up for 1-2 cards a quarter and transfer your spending to that card to hit the minimum spend to receive the bonus. Typically as long as you have not had the card within 24 months and meet a minimum spend you will receive the bonus.
The impact to your credit of this approach will be minor as the number of open cards and age of cards does impact your score, but it is one of the lower prioritized measures. To further minimize the credit impact you can focus on cards that do not have a annual fee. That way when the annual time period comes around you do not need to cancel or adjust your card to one without an annual fee. This will result in a lower amount of signup bonus but keep your age of opened cards elevated, which is another credit score measure.
Annual Fee Credit Cards
Alternately, if you do choose a card with an annual fee, check with the card company to see if they will downgrade the card to a non fee card before you cancel the card. The most difficult part of this process is keeping on top of the cards and when their annual fees/payments occur.
For this purpose my family picked up the Chase Sapphire card recently, for a 50,000 point or 500 dollar equivalent reward bonus. When used for travel the value of these points raises to ~800 dollars. The only stipulations were spending 3K in 4 months, which by transferring all our existing spend to this card was easily achieved. As long as you cancel or downgrade before the yearly fee this is free money.
Manufactured Spend: Most Complex and Risky Way to Get Free Stuff
The final option is called manufactured spend. I do not use or condone this approach but it is important to understand. There are some forms of purchase you can make with a credit card that are easily convertible back to cash. This could be a gift card purchase that a card company treats as a physical purchase, purchasing physical coins (a former very popular form), or even purchasing individual items and selling them. You can find ideas on various forums around the internet.
The risks here are significant. The credit card company can decide they no longer want to deal with you if they determine you are doing this. Even if they do not look at you they could recategorize your purchase type without warning, leading you to encounter a cash advanced fee. I would not recommend this approach as a result of these risks, and I do not actively use this process.
If you can’t tell, my favorite of these is the signup bonus approach. There are many types of signup bonus. Be sure to understand the best redeemable rate when you choose your card. For example for a travel card use it for travel, for a points card use it for points. Sometimes you can find sites to sell a point set for cash, but in general you will earn a better conversion rate to use the points for the category provided. As noted previously, remember to keep your spending under control and watch your credit score. Overall, I personally achieve about 2.5K in extra money a year via this route.
Do you play the credit card game?
You’re right the number of cards don’t matter all that much, but it’s one less headache to have an extra card and worry about making sure you pay the bill on time to maintain your good credit. I’ve worked very hard over several years to get my credit score high. Some of my friends don’t have a high score, so when I recently told them what it was I immediately regretted telling them. Some things should be kept to yourself I learned after that.
Very true, managing multiple credit cards does take time. I usually use an excel template to track my payments as well as annual fee timing. That being said I do agree, high credit scores are surprisingly not common. Its distressing sometimes when I look around and realize how many businesses, and thus how many people, focus primarily on people with no credit. I’ve also found stealth wealth is the best policy.