A huge part of our travel hacking hobby is collecting reward points through credit card sign up bonuses. We have about 40 credit cards between the two of us. What!? 40 cards! But what about your credit score? It must be terrible? Actually, our scores are very good. In the 800’s. Once you know how scores are determined, you can then create an application strategy for getting and maintaining a healthy credit score. Here are a few tips on getting a good credit score that we go by.
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Disclaimer!
First let me say that if you are not able to pay your credit card bill off each month I would strongly suggest you do not get into this hobby. Yes, one of the main elements about this hobby is acquiring mass miles and points through credit card sign up bonuses and then using those points towards inspirational travel. But if you are stuck paying fees to a bank then you are defeating the entire purpose. So lets move on assuming that you are a responsible and capable credit user that pays off their cards every statement.
What is a credit score?
Lenders determine what kind of credit risk you are by checking your credit score with one of the major three credit bureaus. Equifax, Experian and TransUnion. This score is determined from a formula by Fair Isaac Corporation. Better known as a FICO score and ranges between 300-850.
How is it determined?
FICO score is based off 5 factors:
- 35% Payment History
- 30% Credit Utilization
- 15% Length of Credit History
- 10% New Credit Accounts
- 10% Types of Credit Used
Lets take a closer look at these 5 points. I’ll share our strategy on each one, to show how we maintain a strong score.
Payment History
This is based off missed or late payments. If you cant pay your card off or on time then you shouldn’t be in this hobby. We pay our cards off in full every month. I have Auto-pay set up to pay the entire balance when my statement goes through on every card so I don’t forget.
Credit Utilization
The percentage of the total amount of the credit that you have access to, that you actually use. You probably spend roughly the same every month. It hopefully shouldn’t change if you have access to more credit. Lets say you use a $1k of credit a month on average. If you have access to $20k in credit you are utilizing 5%. Then lets say you apply for and responsibly maintain more credit cards and now have access to $60k credit. If you continue to use $1k of the credit, you now have a credit utilization of 1.7%. The banks like that. The more credit you get, the easier it is to get a better score.
Length Of Credit History
The age of each credit card account. We try to keep a card open as long as possible. Obviously a no annual fee card is easy to leave open. Usually it becomes a ‘sock drawer’ card. Only comes out if there is some spending bonus I can use it for. Otherwise it collects dust. Annual fees can chew into your bottom line quickly. About a month before an annual fee is due I’ll start the card analysis. Main question is, do we get enough benefit from the card to justify the annual fee?
First, I’ll call the # on the back of my card and ask for a ‘retention offer’. The first agent may be able to tell you or they might put you through to a designated agent that strictly deals with that. When you call, say your annual fee is coming up and you were wondering if there were any retention offers available to retain your business. DO NOT call in and say you are thinking of cancelling your card. There have been instances where a bank (Citi) has automatically closed accounts. I’ll call in even if I know I plan to keep the card. I may get some extra points, fee waived, cash credited, or some type of spending challenge. For example, they may offer me ‘x’ if I pay the annual fee if I spend ‘y’ amount by ‘z’ date. Doesn’t hurt to ask.
If I know I don’t want the card and I get no decent offer to retain it then I’ll ask to downgrade to a no annual fee card if possible. The bank doesn’t consider this closing the account, just changing to another product. They will then send you the new card and the card’s history stays intact. If I don’t get a good retention offer or I can’t downgrade I’ll seriously consider holding it or simply close it. If I know a card is only good for the sign up bonus I’ll wait at least a month before the annual fee is due to call in and cancel. Best to call in for retention offers around the annual fee due date.
New Accounts
Opening a bunch of credit cards in a short period doesn’t look good to the banks. It makes you look desperate for credit and may be a credit risk. We used to apply for 3 cards every 3-4 months each but now we’ve slowed this down to 1-2 cards every 4-6 months each. Our applications vary depending on different variables. Maybe there’s an increased sign up bonus on a good card? Maybe I’m working around some banks application rules to fit my current strategy?
For example, some banks have rules about how many cards you can have with them. Or how much total credit they will extend to you. Is there a once-in-a-life-time rule to getting the bonus, like Amex? Maybe there is but this time it’s waived? Maybe I have to wait longer to apply for the card because I had got the bonus before, within a 12, 24 or 48 month period? Or I’m working around the 5/24 rule, like Chase Bank. That’s when you wont get approved for the bonus if you applied for more than 5 personal (not business) cards with any bank within the last 24 months. Or maybe I don’t qualify to get the bonus on this card because I have another card from the same bank, that offers the same type of rewards currency, like Citi Bank’s ThankYou Points or AA points?
Types Of Credit Used
The mix of credit, like credit cards, car loans, mortgages, etc. I’m thinking the banks figure if you are able to maintain credit among various types of different products, then you are less of a risk than just having one type?
How To Monitor Your Credit
You may have access to a free credit score through your bank. You can also get a free report from each of the top 3 bureaus every 12 months. I used to check every 4 months with a different bureau. That way I’d work my way through the 3 bureaus every 12 months. Now we use Credit Karma. Its free to use at any time and helps keep all your credit information organized. It will show TransUnion and Equifax.
Wrap Up
As you can see there are many factors to consider to create and maintain a healthy credit score. Here’s a review of the steps that we follow.
- Every 3 months we’ll look at applying for a few new cards.
- We’ll both apply for cards at the same time for ease of organizing.
- We’ll apply for the same cards unless the cards typically have referral bonuses. This way one will apply and wait until they are able to get a referral link to share with the other.
- Once a year I’ll make sure I have at least one charge on every card. Banks may close an account without warning you if they feel you are not using them.
- I’ll call in to the retention line to waive the annual fee. If you don’t like the first retention offer, ask if there are any others.
- Pay cards off in time and in full.
- Do not max out your credit limit. If you must, try to pay some off before the statement posts.
- Keep a spread sheet of what cards you applied for. The bank. The date you applied. Date you cancelled or downgraded. Full name of type of card. Did you set up Auto Pay? What was the sign up bonus? For example, I need to spend ‘x’ in ‘y’ days to get ‘z’ bonus. Then later when doing your annual fee analysis, did you get a retention offer? If so, what was it? You will want to refer to this later if you are applying again for the same card.
- Use Credit Karma to help keep track.
Do you have any tips on getting a good credit score to add?
