The Southwest Companion Pass

Previous Posts

Frugal Travel Introduction
Starting Out on Miles and Points
Booking Revenue Flights - Part 1
Booking Revenue Flights - Part 2
Credit and Travel Rewards
An Introduction to Southwest Airlines

Quick Facts About the Southwest Companion Pass

Last week, I wrote an introduction to Southwest Airlines and covered the things I like about Southwest Airlines and their rewards program as well as their limitations. This week, I am going to focus on the Southwest Companion Pass, which has enabled us to fly domestic flights frequently, paying only the taxes for each flight.

How is it earned? 

The Southwest Companion Pass is earned by reaching 110,000 Rapid Reward points or flying 100 flights in a calendar year.

What does it do? 

It allows the Companion Pass holder to add a companion to a flight booked on either points or dollars for free, no dollars or points required. The only cost is $2.50 or $5.00 in taxes. 

Who is considered a companion?

Anyone the Companion Pass holder decides to list. It could be a spouse, family member, or friend. Also, the holder can change the name of the companion up to three times per calendar year. This is how my dad flew along with me for Hoosier Weekend.

What flights can a Companion Pass holder add a companion to? 

Any flight booked on Southwest.com as long as a seat still remains on the flight. This even includes their international routes such as Aruba, Mexico, Jamaica, or the Bahamas.

How long is it good for? 

The Companion Pass is good until December 31 the following year of the calendar year earned. For example, I earned it in August 2013, so mine is valid until December 31, 2014.

My companion excited to fly along for free!

How to earn 110,000 Rapid Rewards Points

Earning 110,000 rapid rewards points may sound like a difficult task, and it could be especially if you are earning those points by flying.

Below is an example of a one-way flight to San Juan for $290.50. If booking a Wanna Get Away flight, this flight would earn 6 points per dollar on the base fare ($259) and would earn 1,554 rapid rewards points overall. Based on this example, I would need to fly this segment 70 times before reaching the 110,000 rapid rewards points for a total cost of $20,335. Ouch.

Or, instead I could fly to Chicago 100 times paying $69 each way (best case scenario) for a total cost of $6,900. That is a lot of "butt in seat" time as they call it. I have sat next to a few fellow "CPers" who fly a lot for business and had earned it doing one of those two ways. One guy actually lived in Chicago but commuted to work every week in Minneapolis.

However, there is definitely a better and more attainable way for those of us who do not fly every day and who do not have the budget or time to book 70 trips to Puerto Rico in a single calendar year. Points from Southwest's rewards account partners can also count towards to the 110,000 rapid rewards points. 

Included in this is the Chase Southwest personal credit card and business credit card. There are two variations for each card for a total of four products overall. Upon signing up for one of those products, there is a sign up bonus once $2,000 is spent in the first 90 days. The sign up bonus fluctuates between 25,000 and 50,000 points depending on what offer is around when applying.

Partner list where extra points can be earned.

Southwest Rapid Rewards Plus Card (person and business card options)

• Annual fee of $69 that is NOT waived the first year. 
• 3,000 annual bonus on each anniversary year.  
• Foreign transaction fee does exist. 

Southwest Rapid Rewards Premium Card (personal and business card options)

• Annual fee of $99 that is NOT waived the first year.  
• 6,000 annual bonus on each anniversary year.  
• Foreign transaction fees are waived.  

I signed up for the plus versions of the personal and business cards (we rent out our basement) when it was 50,000 for each card. Those sign up bonuses (along with the $2,000 in minimum spend for each card) got us to 104,000 points. Once the remaining $6,000 was completed (from everyday purchases, not flights to and from Chicago), I reached 110,000 points and secured the Companion Pass.

Companion Pass earned!

The best use of the Companion Pass is to earn it early on in the year, since it is good until December 31 of the FOLLOWING year it was earned. That way it could be used for most of the year it was earned plus one full year. Since the sign up bonus points post only after the minimum spend has been completed within 90 days, it is best to apply for both of these cards at the same time between October - December or early the following year (assuming the 50,000 offer is available for both cards).

We met up and talked with friends of ours who then decided to go for it during prime time in October. She signed up for both cards, and waited until January before completing the minimum spend requirement. Both 50,000 bonuses posted to her Southwest account for 100,000 total in January. From there, it took $10,000 in everyday spend to finish out the requirement for 110,000 rapid rewards points. But it gives them a lot of time to use the Companion Pass!

Since it usually takes two cards to get a good chance at 110,000 needed for the Companion Pass, there needs to be a reason to give to Chase why two cards are needed. The simplest way to obtain 110,000 is to apply for a personal and business card (many times there could be a business in your life that might not look like it). Always check HERE for whether or not the 50,000 offer is available vs the lower 25,000. There is also good information on users signing up for the card if scrolling through the pages in the forum.  

The other option is getting two personal cards. There are two versions of the personal card. Getting two personal cards within a short time period (same day, month) might be harder to explain to Chase than getting a personal and business card in a short period. However, an idea that might work is getting one of the cards earlier in the year, and then later in the year getting the other being sure to have a good reason as to why the other card serves a new purpose rather than the old.  

Let's say I sign up for the $69 card early in the year. Maybe I did not know it had foreign transaction fees, or I was just simply was looking for the lowest annual fee card (since not waived first year). Later in the year I am thinking about traveling internationally. In that case, I would like to bring a no foreign transaction fee card with me when I travel. Perfect, now its time to get the $99 version card and explain to Chase why the scenario makes sense to get the 2nd card. With this, they likely will approve the 2nd card and after meeting the minimum spend on this card, 100,000 of the 110,000 is completed for the Companion Pass!  

I will also talk in future posts about some ideas on completing minimum spend requirements on credit cards without reaching outside the budget for unnecessary spending.

Considering?

Our advice would be to only apply for the card when it is at the 50,000 offer and to make sure you research it fully ahead of time (or ask us with questions) to know what you are getting into. Feel free to read up on my favorite blogger for the Southwest Companion Pass - Million Mile Secrets.  I read a lot of his material before completing my CP last year.

If the Companion Pass is not appealing or you do not have time to make use of it, one Southwest credit card could earn the ability to fly a few flights, depending on the points requires to redeem for certain destinations. For example, a 50,000 offer on the personal card should allow for ~4 round-trip flights between Denver and Minneapolis-St. Paul or 2 round-trip flights to San Juan, Puerto Rico.

Currently, I have a refer-a-friend 50,000 offer that is good until 9/30/14, so even if the public offer is not around, I could always give a referral. Full disclosure, I would get 5,000 points.

Looking Ahead

Our plan, if all things remain the same, would be for Amanda to go for the Southwest personal and business cards this coming fall to set us up again for 2015 and 2016. Come 2017, it will be time for me to upgrade my $69 set of cards into the $99 no foreign transaction fee cards. Obviously that plan is a ways out yet and reward programs typically change, but now you know what goes through my head!

The Newest Residents

"In all things of nature there is something of the marvelous." 

-Aristotle

About three weeks ago, we pulled into our driveway, and I immediately noticed we had a visitor.

At first, I thought he was just searching for a dry spot after the latest April snowstorm. Being a bird lover, I was thrilled that he chose our doorstep.

But after further observation, it turns out we had two visitors. The female was hiding in the front hedge and came out to join her mate.

I did not think much about it then, because mallards, wood ducks, and sometimes even loons are spotted in the backyard and around the neighborhood. However, it was a little peculiar since they have never come close to the house. Surely it was too early for them to be looking for a nesting spot?

Turns out I was wrong. This past Sunday (Easter), I noticed they were back to stay. And this time, the female was resting on a well-fashioned and insulated nest.

The female does not move, except for an occasional flight to get something to eat, but she is not gone long. She sits as still as can be, watching and waiting.

I am watching and waiting as well. I do wonder how many eggs there are and how long it will be before there are little ducklings. My guidebook says 24-30 days. Pretty sure I check on her once an hour when I am home. Just like Joey and Chandler from FRIENDS, she is my pet duck. And anyone who comes over gets to hear about our new resident(s) and see her and the nest in person.

These are the times that I wish we had little ones. Nothing like having a classroom right off the front porch! But alas, thankfully my husband acts as a student this time and puts up with my wonder and awe over this animal. Although he claims that dad is a dead-beat, I beg to differ. He is just waiting patiently for his mate and the young ones to join him, swimming circles in the backyard. And he never strays too far. He is always visible from our window.

If you have kids or want to see our newest resident and the nest, please come and visit!

A Weekend with the Nieces

Two weekends ago, we watched five of our nieces - ages 1, 2, 4, 6, and 8. We kept them busy from playtime at the park near our house to a day spent exploring the Minnesota Zoo.

They loved watching Tangled, Frozen, and learning about interest rates from Uncle Matt. From bath time to meal times to Gospel conversations and snuggles, it was a busy weekend that left our hearts full.

My goodness these girls are sweet. 

This girl. She could not get enough of the animals, especially the goats.

There were those moments and meltdowns, but thankfully we made it through with some life-learning lessons and discipline in the process.

I think the girls were as tired as we were when it all came to an end.

Except for maybe the oldest and the youngest. They were bright-eyed and ready to eat some Chipotle. So much so, that I took them in for dinner first, while Matt waited for the others to awake.

And I am continually amazed by how patient my husband is with all of our nieces (and nephews too) and his servant-heart when it comes to letting me stay in bed to sleep and cuddle the little one, while he watches Princess movies with the older ones.

It was a good weekend indeed.

An Introduction to Southwest Airlines

Previous Posts

Frugal Travel Introduction
Starting Out on Miles and Points
Booking Revenue Flights - Part 1
Booking Revenue Flights - Part 2
Credit and Travel Rewards

In my opinion, for domestic travel, it just does not get any better than Southwest Airlines. Southwest has been our most flown airline, and we love every chance and opportunity to fly with them!  In this post, I will outline all of the great things I like about Southwest and its rewards as well as their limitations.

Our Southwest Testimony

Our LUV for Southwest began last August when we earned a Companion Pass. Since then, we have flown at least a one-way flight every month since and have plans to do so up until October of this year (as far out as their schedule goes right now). During the course of all those flights, we have only booked on points for my ticket, and Amanda has come along for free each time (I switched it over to my Dad once). The only out-of-pocket cost per flight has been $2.50 or $5 for taxes per person.

Companion Pass aside, there are some great opportunities to earn and redeem rapid reward points with Southwest. I helped a family of six book flights (five requiring a ticket) to Oregon this summer. Each parent got a Southwest 50k credit card. After the sign-up bonus points posted, we booked their flights the day summer availability opened up. At the time, we did not have enough points to cover every ticket. But two days later, the price dropped, so we were able to lock in their flights using points for everyone. The value of the flights if paid in cash was just over $2,000. Their total cost after using points was $188 ($50 in taxes + $69 annual fee per card).

The usual pic with the Southwest Credit Card stand!

Route Map

Southwest's route map is below. They have been just flying domestic in 48 states for quite some time but have recently added some international routes. Southwest has acquired AirTran and are slated for the complete takeover by end of this year. In the Caribbean, San Juan has been an option to fly as of 2013, but starting July 1st this year, there are flights from a select few domestic airports to more Caribbean and Mexico locations, the farthest being Aruba. Southwest has been flying from Minneapolis for just over five years now, and they only have eight non-stop destinations. Use the interactive map to hover over Chicago, Denver or even Milwaukee, and it is noticeable that those airports have more non-stop locations compared to MSP.

Fare Searches

There are two ways to search for flights on Southwest that I really like. The first is the Low Fare Calendar. Pick any flight and then click the month box for the Low Fare Calendar. This will pop up a full month of the lowest fare on any given day. From there, its a good way to gauge what a reasonable priced ticket might be.

Click "search the low fare calendar."

Low Fare Calendar in dollars

Low Fare Calendar in points

From there, select the specific day to fly and then pick the flight to take. Southwest does not fly direct from MSP to Seattle, so it will require a stop somewhere. When I look the options over a few things come to mind when deciding which one to take:

1. Total Flight Time All things considered, I usually want to take the shortest trip from Origin to Destination.  If I can do that in less time, great.

2. Where Are My Connections? If I can connect in a city along the way, then that usually means my "butt in seat" travel time is most efficiently used. This is not always a great concern as I love flying, but worth considering.

3. Can I take a "no plane change" flight? With this, I could fly on the same plane all the way through. It would stop in a city, but I would not need to exit the plane. Other passengers who have arrived at their destination or who are making a connection get off, and new passengers get on. With this, I am less worried about having a missed connecting flight or something like that as I am in the plane the entire time. Also, I would be with a only a few other passengers staying on, so I could choose just about any seat on the plane!

4. POINTS required! This usually will have the most sway for a guy like me, but in the instance below, I'll take a decent travel time with same plane and almost lowest fare.

Example of flight options MSP-SEA available on points.

Getaway Finder

Another option that I have just recently starting looking into is called the "getaway finder." With it, I can select a starting point and other criteria. I can then drag the price (either dollars or points) to what the max I want to spend. If there is absolute flexibility on destination but with set with dates to fly, it would not hurt to continue checking this method. If originally choosing a trip to Seattle for $269 R/T (or 15,106 points), a better option might pop up later to a different location with a lower price. With a few clicks, the destination could be switched and could possibly yield some savings! 

Example of a search from MSP for a round-trip anywhere on Southwest.com. Here is an example of max 17,000 point redemption for a round trip the weekend of May 9-11.

Flexibility

The ability to cancel/rebook flights on Southwest adds value to an already valuable program. If booking a revenue flight, the cancelled flight would not go straight back to the credit card used to book the flight but instead into travel credit that would need to be used within the next 12 months from booking. It is possible to book a business select or anytime flight and have ability to receive funds back on credit card, but I do not see much value added for the higher cost flight.

When booking on points and cancelling, the points go back to my reward account, and I can select to have the minimal tax fee refunded to my credit card. Many times if we are taking a flight somewhere, and we are not sure what specific time or date we can fly out, I will book one, two, or three one ways. I can cancel up to ten minutes before flight departure. Or, if we are still unsure if flying to the destination at all, we can still book and figure out the rest of the plans later, knowing we could always cancel the whole flight if needed.

We love the flexibility of Southwest.   Examples of some of the activity from trips to Colorado and South Florida.

The best practice with Southwest is to book early if planning to use them, and then watch for fare sales. Fare sales happen just about every week when different months/routes go on sale. On just about every flight we have taken, I have cancelled at some point and re-booked at a lower point redemption. This means I am checking their website frequently!

We used Southwest to get to Newark (EWR) for our Italy flight.  First of all, I booked several flights on the way out since I wanted to have a few backup plans if weather was bad that weekend (did not want to miss the second itinerary on United). Second, we booked our one way out to Newark right after booking the Italy flights. At the time it was ~12,000 points to fly from MSP-EWR, but we had three months to see if the required points was going to drop. I re-booked it two or three times, and eventually it only cost 7,144 points for our one way to EWR.

It is worth it to use the Southwest app (which saves recent searches) and check once a day on booked flights to see if the cost has gone down. It is literally about three clicks to get to a recently searched flight. Most likely within a few months, it will at some point drop and only takes five minutes to cancel and re-book.

A golden rule with Southwest, is to ALWAYS book two one ways and not a round-trip flight. Sometimes the destination flight may drop, but the return flight has increased in price. In that scenario, the drop on one of the one ways may not be enough to offset re-booking the round-trip flight, or it could be even more costly because the other one has increased substantially. If I have booked two one ways, I can focus on each one way in itself and re-book it whenever there is a reduced price. It does cause a lot of activity in my account/email though! I use my Southwest credit card now primarily for paying the tax fee on each of our flights. However, I have received two page credit card statements just with the in/out of the $2.50 or $5.00 tax charge!

Free Bags

A cost that can really add up when not thinking about it in advance is baggage fees. If flying Southwest, two bags can be checked without additional cost. The commercials are pretty clear on this one, so that is nice, and they say it could be worth up to $100 which would be true if checking 2 bags on another airline charging $25 each per one way. We actually have not taken advantage of this great perk of the airline too much. We usually like to travel with carry-ons, and then jump out of the airport quick at the destination. Plus with short weekend trips, we really do not want to be waiting  at the baggage claim or having to deal with lost luggage.

Customer Service

The flight attendants on board seem to just about always have a wise crack ready to go and are really good about giving an extra pack of peanuts, coffee, or Amanda's favorite - hot chocolate! The first time I flew with them I asked if I could have a cup of coffee and Sprite. The flight attendant responded "Sure you can, this isn't Delta!"

Extra peanut bag? Sure thing. Coffee and sprite? No problem.

I have not had a pre-flight talk go this far but usually they are joking throughout the entire thing. It is hilarious to hear in what is normally a very stiff process. I recently was talking with an AirTran flight attendant, and I asked what her feelings were on the acquisition. She and the other attendant chimed in right away to express their excitement about it. They were excited to be able to work for Southwest because normally it is very hard to get into Southwest as a flight attendant. According to its corporate fact sheet in 2013, the company (which has 45,000 employees) received 100,682 resumes for 1,521 new employee positions last year.

Boarding and Check-In Processes

For those who have not flown Southwest before, the first time flying might be a bit of a training session until you know what to expect.

Boarding

Some people initially see Southwest boarding to be somewhat like herding cows as there is no assigned seating. So once a passenger is on the plane, any seat is fair game.  Obviously, then, there needs to be some order prior to getting on the plane.  

Southwest mainly flies 3 planes: the Boeing 737-300, Boeing 737-700, and Boeing 737-800. The maximum number of passengers each plane can hold is between 143-175 travelers. During check-in, either the letter A, B,or  C will be assigned and listed on the ticket, followed by a number 1-60. Passengers board in the letter group and number within their letter group.

Example: If I have B05, I'll be the fifth person to board after the A group has all boarded. Everyone lines up before boarding the plane and walks on looking to avoid the middle seat between 2 large men. 

A1-20 are basically business travelers that sit in the first few rows and start reading the paper while others are boarding. I like the sweet spot of A20-45 where I feel I have the best chance of grabbing the exit row where there is a little more leg room (keep in mind most other airlines will charge an extra fee for this row). Either way, it is a fun process for me, and I always enjoy getting to know fellow Southwest fliers on the plane. I love boarding!

If flying with kids, family boarding begins after A group, so it is also very family-friendly!

The C group is basically those that have never flown Southwest before and get their ticket when showing up to the airport. On packed flights, the C group basically fills in all the middle seats and typically needs to check carry-on bags as overhead bin space is filled at that point. 

Southwest boarding: A1-60 first, then B1-60, finally C1-60. 

Check-In

On other airlines it may not be necessary to check-in right at 24 hours before departure, but other airlines do not board like Southwest. This is also one of those areas where you might think we are crazy, but we like to think of it as having an efficient system. We set up phone alarms for ~24 hours and 15 minutes prior to departure. Then, we get ready to click "check in" on our smart phones. There will be two clicks needed prior to getting a boarding position. Other Southwest crazies will be doing the same thing, so quickness and getting to clicking the second "check in" in the shortest amount of time once reaching 24 hours prior to boarding is key. The check-in button is not even available until 24 hours before, so once it is visible, it is go time! 

From our experience, we have found that using a smart phone is faster than using a computer. Internet speeds are one thing of course, but the pause between those two clicks could be the difference of an A vs B boarding position. Also, the distance for my finger to move from the first "check-in" spot on my screen to the second "check-in" spot on my screen is shorter and faster than the distance between the two clicks using a mouse on a computer. My friend joked that he should make two dots on his phone screen protector, so he can always make the clicks simultaneous!   

Example of clicks on a smartphone to get to boarding position.  Don't pause after first check-in click!

Personal best last October!
Apparently boarding position was not important to everyone at 6:45 a.m. the day before.

There have been programs designed to do this automatically, however, Southwest has been pretty successful at getting these sites shut down. Instead, Southwest now charges $12.50 for Early Bird Check-in which occurs 36 hours before departure. Depending upon how many people sign up for this, it should get a traveler a good position in line. I would rarely elect for this, so usually we are just a little ways back behind the EarlyBirds. 

We did use Early Bird Check-in when going to Newark in route to Italy because 24 hours prior to departure, we were in the middle of a ski race and could not stop and check-in. Also, I wanted us to be in the first few rows to jump off the plane and make our 30 minute connection at Chicago Midway. Other than that situation, I have never used it, and usually we end up somewhere in the A's to low B's, depending upon how full the flight is and how many Early Bird check-ins or A-List elite's are on board. 

Disadvantages to Southwest Airlines

Southwest is not for everyone or for every situation. There are also some limitations I am not too fond of.

1. You can only search for flights on Southwest.com.

This makes it much harder to find fare sales or hidden city fares. I normally like to search on ITA Matrix for any other airline, but I can not search for Southwest there. One nice benefit is I can still search Airtran on ITA Matrix. Also, the searching ability with the "getaway finder" and "low fare calendar" on southwest.com are great features, so I'm glad those are possibilities.  Also, the calendar only goes out about 6 months as compared to some other airlines that have it open for the next 12 months.  However, make sure to check HERE to know when the next time the schedule gets extended.

2. It offers a limited network.

Although Southwest is growing and servicing more destinations and non-stop flights, there are still limitations. From Minneapolis, there are only eight non-stop destinations, and I can only hope they add to their non-stop options. If a traveler does not enjoy making a stop, then this airline might not be a right fit. However, if living in Chicago, Houston or Denver, there are more options.

Southwest is a cost-cutting airline, so in some cities they will fly into a smaller airport instead of the main one. Examples: In South Florida, they fly into Fort Lauderdale but not Miami or in Chicago they fly into Midway instead of O'Hare.

MSP: 8 non-stop flight destinations compared to Chicago-Midway having 64 non-stop flight destinations.

3. Their on-time performance is lagging.

Southwest used to be at the top among airline carriers in getting passengers to their destination on time. They broke the industry mold of having "hubs" and instead flew mostly non-stop flights between heavy traffic areas. Now that they are trying to connect more airlines to more cities, their records are going down. This past December was a brutal month for them, and it is worth tracking to see if this is something that will turn around or become a recurring theme. However, it has experienced an airline industry record 41 consecutive years with a profit and no bankruptcy. Those two stats are something no other airline can claim, and the recent dip in on-time performance will be something its customers and shareholders will demand in order for that streak to continue.

4. The airline recently went through a devaluation in points.

Every airline goes through a devaluation to their points throughout the years. Southwest did just this on March 31, 2014. Prior to this, it took only 60 points per $1 in base air fare (so 1.67 cents per point in value). Now it has increased to 70 points per $1 in base air fare (1.43 cents per point). However, there are some taxes that are not required to be paid when booking on points such as the Excise taxes, Segment fee, and Passenger Facility Charge.

These charges can vary by route, but in the below example, the true value of booking by points to fly to Denver for 5,535 points (plus $2.50 tax) vs $96.00 is a value for each point of 1.69 cents. By this valuation, the 50,000 point Southwest credit card would be valued at $845. Double that value if getting two cards - $1690. Double that once more if flying with a Companion Pass - $3,380 in free travel! I will not even go into the intrinsic value of ability to cancel and re-book flights which would inflate this value higher. As you can see, I still see a lot of value in Southwest points even post-devaluation!

Overall though, we think the advantages to flying Southwest far outweigh the disadvantages or limitations of the airline, especially when it comes to domestic travel. What do you think?

Perhaps now you are wondering, how to earn points for free flights on Southwest? Next up, I will breakdown the Southwest Companion Pass and other ways to earn Rapid Rewards points.

Credit and Travel Rewards

Previous Posts

Frugal Travel Introduction
Starting Out on Miles and Points
Booking Revenue Flights - Part 1
Booking Revenue Flights - Part 2

In This Post

In the upcoming posts, I will be going through some miles and points opportunities that come from credit cards. I do not take credit lightly as this is a big part of anyone's financial future, and it is important to protect it. Therefore, I would not suggest considering any new credit card without learning basic credit information, committing to at least monitoring your credit periodically, and researching the credit card(s) in depth. What I have found is that while guarding my credit and inquiries in the past year, I have actually been better at monitoring my credit, improving my score, and knowing the effects more.

Our View on Finances

In our finances, we tend to agree mostly with the Dave Ramsey style of managing money. We strive to be debt-free (but have a mortgage), like to think long term in our investments with mutual funds, and agree with his strong commitment for keeping a budget, "A budget is telling your money where to go instead of wondering where it went."

However, when it comes to check-out, we would disagree. He is strictly cash and only debit card if necessary. If I ever went out to dinner with Dave and he is paying, I would ask him to flow the cash through me instead, and I will swipe my 2x or 3x points Chase Sapphire Preferred card :). I would love to manage his office, cell phone, and internet payments with him cutting me a check after I earn 5x points from my Chase Ink. So actually, the main area where we would disagree, could be pretty complimentary!

But, I do agree with him that we need to honestly think about how a credit card influences our spending habits. In my opinion, it is important to only use a credit card as a payment method at checkout and not a method of financing a large purchase. This is especially important in regards to reward credit cards where interest rates are typically higher than on lower benefit cards. For clarification purposes, we always pay our entire credit card bill(s) in full every month.

The FICO Credit Score

Let's look at the makeup of a FICO credit score first. Below is an idea of what parts make up the credit score calculation. This pie chart is explained more on FICO's website, but it can be seen that the largest part (65%!) that goes into a score is:
1. Payment history
2. Amounts owed.

Payment history can be pretty simply explained as making sure to not miss any payments. It is also better if there is a long track record of doing so.

Amounts owed is based on outstanding credit balance (as reported on most recent statement) divided by available credit. Another term that might be used is "what is my utilization ratio?"

So, how can this game of miles and points help in these two largest categories (payment history and amounts owed)? Well, the more cards showing good timely payments, the higher the portion of 35% will score out the best.

If I only have one or two cards with $5,000 of available credit, and I pay off my $2,000 balance in full each month after the statement cuts, then that still would reflect a 40% utilization ratio. This would be considered high usage of amount available to me and would actually hurt my score.

But, by having a few cards with $5,000, $10,000, or $20,000 credit limits, I will hardly ever even register a utilization ratio. By showing the credit card companies the ability to 1. not miss payments and 2. keep my balances low in relation of available credit, I will be raising my score AND earning lots of travel rewards at the same time!

It is correct, however, that opening new debt will have a degree of negative impact to credit score. The two parts of the above pie chart that are specific to this are Credit history and New credit. By opening new cards (accounts), the average length of history will go down. Each inquiry will have anywhere from a 2-5 point effect on the credit score right away, but it recovers in 90 days. New inquiries will last on a credit report for two years, having a less and less affect on credit score as they approach the two year mark. As these cards age, the history will grow.

Keep in mind it is important to NEVER close off those old cards that hopefully have no annual fee (think department store credit cards or similar). The longest aged account is a part of this 15% pie for credit history, and it is important to keep the old ones around. You never want to close your oldest credit card! By closing those old accounts, you could actually hurt your credit score.

The Three Credit Bureaus

Knowing what goes into one score is not the end to knowing how the score will show to the next creditor who pulls a report. Why? FICO is just one scoring model, although it is the most widely used. There are several others and also three different credit bureaus: Transunion, Equifax, and Experian. So realistically, there are several different ways someone could provide a "credit score."

Essentially, there are several calculations based on three bureaus. This could be confusing. What I would rather focus in on when monitoring my credit is not the specific score, but instead the activity being reported and the direction my "credit score" is going. These are at least good determining factors on what my score was from my last pull to the next.

How We Keep Track of Inquiries

I have a spreadsheet to track every single inquiry on each of our credit reports and to keep track of when it will fall off. I also monitor which of the three bureaus each of the inquiries hit. Not all credit cards will pull from all three bureaus. It varies by bank, and each bank could pull one, two or three of the bureaus. There is even a website that users report what they have experienced with each bank.

In Minnesota, I know when applying for a card, and if that card happens to be Barclays, they are most likely only going to pull Transunion. If applying for a Citi or Amex card(s), my experiences have been only Experian. With Chase cards, I will get a hit from Experian and Equifax. Capital One gets the big "think twice" from me not only due its lackluster rewards, but also since it will pull all three of the bureaus.

Monitoring Credit for Free

There are several resources that can be used to keep track of your credit without paying a monthly service charge.

Annual Credit Report

This is a must for everyone. Each year everyone is entitled to one free full credit report from each of the three bureaus. The score would require a payment, but tracking what is going on inside each of the reports is the most important.

Credit Karma

The Credit Karma website is based on the user's Transunion report. What goes into the score provided can be read more here, but I like a few things about this website:

1. It monitors how many Transunion inquiries I have and tells me within a day or two when it happens. I can track my Transunion pulls pretty simply by following this website.

2. I can log-in every 6 days if I want, and it will provide updated Transunion information. As long as I log-in once a month, it will track my score and chart it.

3. There is a credit simulator that can be used to see how adding a new account, increasing credit limits, or adding inquiries will affect their scoring algorithm.

Credit Sesame

The Credit Sesame website is somewhat similar to Credit Karma, but it tracks my Experian report. There is not a continuously tracking free site for Equifax, but by combining Credit Karma and Credit Sesame, I can at least track all my activity within two of three bureaus. It does not give monthly balances or finer details of the credit report, but it does a great job of tracking my inquiries. I have the app downloaded on my phone, and I usually receive a notification within a day when an inquiry has occurred.

Quizzle

Quizzle is also used to monitor Experian. This website allows a full report to be pulled every 6 months.

Target free monitoring - must request by 4/23/14

With the recent Target data breach, they have offered free monitoring for one full year if signed up through the attached link. This allows free monitoring on Experian.

One last way I check my reports is when I get a new credit card. The verbiage within the disclosure that comes with the credit report usually provides the credit score used, so I write it down for a data point. In addition, it provides the bureau used to pull credit and includes a link to go online and get a free report if there was any negative action on the application. I always consider the fact that I may have had a lower interest rate (although I am not concerned on rate since I never carry a balance).

The Two Golden Rules to Follow 

There are two rules to follow if looking to sign up for credit cards:

1. If your credit score is below 700, it is best to lay low.

It is a good idea to maybe apply for one or two cards just to build payment history and to increase available credit, but nothing more than that. If at any point, your credit score goes below 700, it is a good idea to focus more on the monitoring aspect rather than signing up for credit cards. At this stage, it is more about the credit building.

2. Be very careful or stay away from any new cards if a major purchase is coming up in next year or two. 

Ideally, it is good to stay at or above a credit score of 720, but better yet even closer to 740. This would enable one to get a good interest rate if ever deciding to open a new line of credit that would actually require interest to be paid. Also, by allowing inquiries and account history to season a bit, this would likely increase your credit score prior to applying for new credit (example: mortgage).

Additional Advice

To start, I would suggest getting a few credit cards that you know will be around for a while. This would include cards that have no annual fee, those that can be "downgraded" to a no annual fee, or a card that has an annual fee but the anniversary bonus has more value than the fee, so it is worth it to keep around. In all those instances, the first few cards are good building blocks for raising credit score and establishing a good relationship with some of the strong players in the credit card industry (Chase, Citi, and Amex). Start small, focus on your travel goal(s), and make sure to do your research first!

Resources for Beginners

Here are a couple of good blogs to read beginner information in relation to credit usage:
Frugal Travel Guy
Million Mile Secrets
The Points Guy
Mommy Points
Well Traveled Mile

Up Next

I will be covering Southwest Airlines, so stay tuned for a breakdown of one of our favorite airlines and rewards programs. And as always, if you have questions or comments, we would love to hear from you!