The Icarus Paradox–When Banks Clip Our Wings

We’ve gone over plenty of great ways to earn and use miles these past few weeks.  However I’d like to get a little serious with today’s post. Bad things can and do happen in this game we play. We’ll want to be familiar with the weapons the other side has against us in the battle for Miles and Money, just like we want to know the best stores and Credit Cards to earn miles with.

The First Frequent Flyers

Some of your may be familiar with the story of Daedalus and his son Icarus.  Daedalus was stuck on the island of Crete, unable to leave by sea.  Instead he created wings, made of bird feathers and secured with wax. He and his son took off to leave Crete, and as they were flying he warned his son not to fly too high, nor too low, since the sun and the waves would ruin his wings.

Icarus, overjoyed with the fancy of flying, flew too close to the sun, melting the wax on his wings and plunging him down into the sea, where he drowned.  Daedalus went on to fly to safety, but in doing so lost his son Icarus.  The very wings that he created to give him his freedom also cost him his son’s life. 

The Icarus Paradox

Think of the world of Frequent Flyer Miles as this same paradox; the very items we use to create miles, to free us and allow us to fly, can also be our downfall.  Flying too high; earning too many miles too quickly can cause our wings to get clipped. I’ve been saying from the very start of this blog that we will take only the miles we need for our travels–holding onto large mile/point balances is foolish for many reasons. A great way of thinking about this is that yes, you can have too many miles.

First, large point balances are money and time you could have spent elsewhere.  If you have plenty of miles and want to continue churning and doing MMRs switch to a cash back card (especially a 2% or better card) and earn cash instead of miles.

Secondly, over applying for credit cards all at once can also cause isues.  We’re followers of the Credit Card Calendar, and especially in 2 person mode (with a spouse or S.O.) this method spreads out your credit card applications into 6 month periods.  This gives order to your applications. You can over-apply.  I’ve seen people brag about applying for 8-10 cards at once, or applying for a batch and then a month later applying for another batch.

A common philosophy Milenomics uses is to put ourselves in the other person’s shoes. Think about what it might look like to apply for a large number of credit cards all at once. You’re thinking “heh.heh.heh….all these miles will be mine.”

The banks are thinking “Why is this person applying for so many cards all at once? Are they about to lose their job and want as much credit at their disposal as quickly as possible?”

Or if you go from never using a card to using it for the limit each month a bank might think you’re charging up the cards to attempt to default and stick them with the balances.  Risky behavior is what banks don’t want.  And, unfortunately, the behavior we use is sometimes seen as risky.

AA and FR, Your Worst Enemies

AA is Adverse Action–any negative action taken by a card company.  This could be anything from slashing your credit limit to closing all your accounts.  In our Chase Gift Card Debrief we discussed how some people who took part in CGCs saw all of their Chase accounts closed.  This is an example of a deal going terribly wrong.

FR is a Financial Review, something that can be triggered by large purchases, applying for too many cards, exceeding your overall credit limit monthly or anything else a bank decides warrants it.  From the best of my knowledge Chase does not do FRs, but Citi and Amex do.  That doesn’t mean go nuts on Chase cards. As the prior paragraph outlined, some had all their Chase accounts closed over $2500 in gift cards.

Financial Reviews can be thought of as a personal Audit.  Citi and Amex will ask you for access to your tax forms, go over everything listed, and also talk to you though the process.  Coming out of a FR with cards open is possible, but it is also possible to have your accounts closed, or credit lines slashed.

Part of why Milenomics doesn’t advocate closing cards outright is because of fear of FR and AA.  Keeping those cards lets us spread our purchases out a bit–and merging credit lines lets us beef up our total available credit with each bank so we’re not using as much of a percentage of our total line when we go heavy during Mile shortages.

How to Avoid Trouble

It needs to be said: there is a risk of negative action simply by playing this game.  I’m sure someone, somewhere decided to get into churning miles by using Chase Gift Cards, only to soon find their Chase Accounts closed.  How much risk are you willing to accept? is a question you should be thinking about.

That said, the best way to avoid any issues is to ensure you ALWAYS put your real, and true yearly income on credit card applications.  It might be tempting to put that you make $100,000 more than you make a year thinking you’ll be approved for more accounts–this can and will land you in trouble (or even jail in extreme cases!) for fraud. When the bank pulls your tax forms during an FR they’ll see the true income anyway.  Milenomics is about being truthful and honest.  Honesty really is the best policy in all stages of this game. 

Self Control is Key

Remember the old adage: If a little of something is good, a lot must be better? This is absolutely not true in the game we play.  Part of the issue is that there isn’t really a magic formula.  Lots of people ask me “how much is too much,” and the answer really is “I don’t know.”

Too much seems to rely on many unknown factors, including your spending in bonus categories, your purchase sizes, and how many cards you have open.  I don’t know of a specific formula to determine too much, if someone does please do share it. 😉  Part of the reason for this is that much of what is done on credit card accounts is automatic.  Once you get a person involved–say for looking at fraud, that alone could peak their interest and cause AA. You really don’t want to draw any more attention to yourself by real people more than you need to.

Tomorrow we’ll talk about strategies to compartmentalize in case of AA, and try to limit any damage that can be done by it.

Note: Olympic Airlines actually had a frequent flyer program called The Icarus Frequent Flyer Program.  Why anyone (Greek or not) would want their airline associated with someone who crashed during their first flight is beyond me.  In case you found this article thinking it was going to be about the Icarus Frequent Flyer Program…sorry, it is not.