I have a close acquaintance that I regularly get together with. He is fun to hang out with, brilliant at his work, and is not bad at handling his personal finances. Nevertheless, every time I talk to him, I am surprised at some of the mistakes he makes with his credit cards and their rewards. It is not like he is missing payments or even paying interest; he is much too smart for that. It is just that he really needs my guidance when it comes to maximizing his relationships with his cards. This is the same person who I wrote about earlier in my piece, “How Not To Use Your Credit Card To Book Award Travel.”

His Latest Lesson

We are receiving the check from having lunch together, and he lets me know that he does not have his credit card on him. What happened? His wife lost her card, so they had to cancel his while they await new ones. Until then, he was paying for everything in cash. There is nothing wrong with occasionally loosing a credit card, it happens to the best of them from time to time, definitely including myself. Upon finding out that he was without a card, I asked him why he didn’t have another card. His answer was basically along the lines of “Why would I need more than one credit card?”

Where To Begin

Obviously, I informed him, his current predicament is one of many reasons why one should always have multiple credit cards. Cards get lost, damaged, stolen, and expired. In those situations, you can still get by with cash for a cheap lunch, but it becomes a little harder to conduct other transactions with cash. If you don’t believe me, try renting a car or a hotel room without a credit card some time. Better yet, just try ordering something off of the Internet with cash!

My parents gave me my first credit card as a teenager. The whole point was so that I would have something in an emergency. If I was driving around and my car broke, I would have to have a way to pay for a tow truck or repairs. Later when I was living out of state while in college, they made sure that I always had a credit card in case a whole host of emergencies befell me, especially while I was traveling to and from school.

Furthermore, having multiple credit cards increases your credit score. It is counter-intuitive to some, but each card represents a new line of credit, expanding your credit history. Beyond that, having a larger credit availability decreases your credit utilization ratio, another component in your score. For any given amount of debt, the more available credit you have, the lower your utilization ratio. Keep in mind that even those who always pay their entire balance in full will still have debt listed on their credit report. When these people pay off their statement balances, they will  always have new purchases on their account that have been incurred after their last statement closes. Therefore, 20-50 days worth of spending will always appear as debt unless someone pays their statements well before their due dates or pays more than their balance.

Another good reason to have multiple cards is to maximize your rewards. Huge rewards can be obtained by sign up bonuses, but multiple cards also allow you to have specific cards for specific rewards. You can use a gas card for gas purchases, an airline card for airfare, and cash back cards where they return the maximum rewards. The possibilities are as endless as the number of credit cards on the market.

In Conclusion

Can you have too many cards? Sure, but if you only have one, you are really selling yourself short. Many credit experts recommend that 4-6 cards is the optimal number to maximize  your credit score. With so many enormous sign up bonuses being offered these days, it is sometimes tempting to apply for every card you see. If you don’t hold more than one card, you really should reconsider that strategy.

I am not a gazillionaire. I do not earn millions of points and miles based on my lavish lifestyle that I charge through my credit card. In fact, I am a very frugal person. I eschew cell phone text and data plans, don’t receive cable or satellite tv, and wake up early to take a bus and/or a bicycle to work. That said, I am probably the only person who regularly takes the bus to the airport in order to fly international business class. The only way I get to fly up front is from earning frequent flier miles from my credit cards via their generous sign up bonuses.

What Is Churning?

Banks only offer sign up bonuses to those who are not currently card members. In fact, their terms often mention that applicants must be first time card members in order to be eligible for the bonus. In reality, these policies have always been enforced loosely. There was a time, not too long ago, when you could sign up for an American Airlines credit card several times a year, obtaining a new sign up bonus each time. Exploiting this loophole was called churning. That loophole has since closed, but there has always been a less efficient way to do the same thing.

The Slow Churn

What many people like myself have done is to sign up for the same card, not month after month, but more like year after year. I am sure I have received a sign up bonus on several different occasions over the last decade or two. I haven’t done so systematically, I just sign up when the bonus offered is particularly generous or when it is in conjunction with another promotion. Usually, the first year is free. When my annual fee comes due, that is a great time to cancel the card. Wait another year or two and repeat. The trick is that there are so many cards from so many airlines that one could easily complete this process indefinitely.

Why Banks Ignore Their Rules

I can’t say with any certainty why this happens. I have to believe that their are built in limits to their record keeping. It wouldn’t surprise me if data from inactive accounts was purged from their systems every year or so. I also suspect that this is not a bug but a feature. The point of a sign up bonus is to generate new accounts. That goal is still achieved, even if I had an account with that bank sometime in the past.

How To Slow Churn For The Most Miles

First, only bother with the bonuses that are the best. 25,000 miles is just a starting point; it takes 50-100,000 to turn my head. Next, grab as many as possible. Go for the personal and the business accounts. Have your spouse or partner do the same. Always make sure to capture a screen shot of the deal so you have some kind of proof should you be denied the miles. Make sure to fulfill your end of the bargain by meeting any minimum spend requirements. Finally, cancel the card before having to pay any annual fee. One strategy is to keep the card for a year to maximize your credit history, while another school of though is to cancel the card quickly to increase your chances of being eligible for the next sign up bonus. I tend to do the one year thing, as I have heard that the sign up bonuses are only denied to those who received a previous bonus recently, not those who cancelled their card recently.

Conclusions

Wealthy people can count on receiving miles and points from their regular spending. For the rest of us, we have to rely on the sign up bonus. One is just not enough. By earning multiple sign up bonuses from different cards each year, we can continue to fly for free year after year. What can be better than that?

For those with good credit, it can be a huge shock to be denied a credit card. The reasons given by the bank for your denial can range from plausible to laughable. Fortunately, a denial letter is not the final word in the process.

How You Get A Denial Letter

Have you ever been in the position of having to evaluate stacks of applicants? Perhaps you have received resumes or have been the judge of a contest. The more applicants you review, the more your think about creating a system that could automatically assess each applicant and make a decision for you. That is precisely how banks review the thousands of credit card applications that they receive each day. Their financial people work with their systems developers to create an automated set of criteria that will determine the fate of your application. Your credit score is undoubtedly a major component, but there can be many other factors. These criteria can include existing accounts with that bank, recent applications for credit, and even demographic patterns that the bank feels will affect your credit worthiness.

Consider Reconsideration

Thankfully, you can “appeal” your decision to a human. By contacting the bank, you can speak with a customer service representative that may have the ability to over-ride the computer’s judgement. This process is called reconsideration. You may either write a reconsideration letter or simply make a phone call. The purpose of the communication is to provide additional information that will supplement your original application. You may ask the bank to consider your history of good payment to your other accounts, or to consider other forms of income that were not asked for on the application. If your financial situation has changed for the better since you submitted your application, you may wish to revise it. For example, you may have paid off a credit card or a loan, or perhaps you have received a new job or a raise.

Another tactic you can use to get a bank to reconsider a credit card application is to ask for a credit line adjustment. For example, if you already posses a card from that bank, you may ask that they reduce the credit line of that card and re-allocated it to the new account. In this way, the bank is not really granting you new credit and they will have less reservations about approving your account.

Why You Would Want Reconsideration

The credit card industry is getting to be extremely competitive. New card offers are entering the market at a ferocious pace. The only time I have ever been denied a card was for the first 100,000 British Airways offer. It turns out that I had only recently received another card from Chase, and their computers determined that I was ineligible to receive this card. While my reconsideration effort was a failure in that circumstance, I at least gained some experience with the process.

When To Ask For Reconsideration

While many people wait until they have received a rejection letter, others report success in contacting the bank any time they do not receive an instant approval. Technically, this may only be “consideration” rather than “reconsideration”, but the result is the same; people contacting their bank are able to obtain instant approval by successfully convincing the right person that their application is worth approving.

Conclusions

Modern banking systems are highly automated, yet there is still a human element left in the process. By attempting reconsideration, applicants have nothing to loose. When an credit card offer is just that good, and you really can’t explain why your application was not accepted, you should always take the extra step to contact your bank.