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One of the guiding principles of award travel is protecting and maintaining your credit score. Getting approved for top rewards-earning credit cards like the Chase Sapphire Preferred® Card requires a clean credit file and a minimum 700+ credit score. But what if your credit score is under the magic 700 point threshold? Or you’re fresh out of college and trying to build your credit file from scratch?
To establish a good credit history, you need to borrow money from a lender and pay it back on time and in full. But without a credit history, banks will be reluctant to approve you for credit. It's a classic ‘chicken vs. egg' scenario. Thankfully, the path to building a credit file is well worn. Start small, use your credit wisely, pay-on-time every-time, and your credit score will rise as a result.
Understand How Your Credit Score Is Calculated and Reported
When you borrow money from a credit provider, the lender reports your payment history to one or more credit reporting agencies.
These agencies compile the information provided, using it to determine your FICO score. Your FICO score is a three digit number between 300 and 850, with 850 being the highest achievable credit score. The following factors are taken into account when calculating your credit score. Note: your income is not on your credit report and plays no part in your credit score calculation, which is why creditors will ask for your income on a credit card application.
- 35% Payment History – late payments represent a much higher credit risk for lenders
- 30% Amounts Owed – also referred to as credit utilization rates or available credit vs. how much is in use
- 15% Length of Credit History — average age of revolving debt accounts
- 10% New Credit – hard pulls and new accounts show here
- 10% Credit Mix – entire lending portfolio, i.e., car loans, mortgages, guarantor accounts, credit cards, etc
You’ll find a full breakdown of each point in our tips on managing your credit score, but one of the big takeaways is how factors like payment history and credit utilization rates play into the equation. As you build a history of positive (or negative) information on your credit file, that data is recorded, and other lenders can then look at that information to help decide whether to offer you credit.
Banks and other lenders want to see a history of you borrowing money via a range of finance vehicles (auto loans, credit cards, mortgage, store charge accounts, etc.), using it responsibly, and paying it back on-time, in-full, over an extended period.
How to Monitor Your Credit File
We recommend checking your credit file on a regular basis. That way, if anything is amiss, you can jump on it immediately without any adverse effects to your score. You can signup to a paid service like MyFico.com, but there are also options that don't require you to shell out a monthly fee.
Rewards cards like the Barclaycard Arrival Plus® World Elite Mastercard® allow you to monitor your FICO score as a credit card benefit, or you can use an online service such as Credit Scorecard from Discover or Credit Karma to ensure records are updating on-time and correctly.
How Access to Credit Can Increase Your Credit Score
Contrary to popular belief, applying for credit cards and adding new lines of credit can have a positive long-term effect on your credit score. The best strategy if starting from scratch will be secured credit cards, small personal or auto-loans, student or ‘entry-level’ credit cards, and having yourself added as an authorized user on a family member’s credit card accounts.
Entry-level cards don’t offer the same level of rewards, benefits, or credit limits as their premium counterparts, but they are designed to help people at the beginning of their credit journey establish a credit history, and help develop a relationship with lenders that will have benefits in the future.
Secured Credit Cards
A secured credit card is an option even when you have no credit file or bad credit. You deposit cash into an account, and you’re provided a credit card to use as you would a typical credit card (the limit is typically the same amount as the ‘security deposit' with the bank).
You’ll pay interest on purchases and late-fees if you don’t pay on time, but you’ll also reap the benefits if you use the card responsibly, as all data is passed on to credit agencies and treated as a typical credit card. Below you'll find two rewards earning secured credit cards from US Bank, along with a card each from Digital Federal Credit Union, Capital One, and Discover.
- SKYPASS Visa® Secured Card
- AeroMexico Visa® Secured Card
- DCU Visa® Platinum Secured Credit Card
- Discover it® Secured Card
- Capital One® Secured Mastercard®
These cards all offer a quick and easy method for getting some initial feedback on your credit score, and if held for six months to a year, will help you achieve the kind of score needed to move into higher tiered cards.
Student, Entry-Level, and Store Credit Cards
In addition to secured credit cards, most banks and credit card providers offer base, entry-level credit cards that allow you to earn a small number of points, miles, or cash back while you build your credit score. These include student-focused credit cards, store cards offered in partnership with big retailers like Costco, and cash back cards like those in the list below from Citi, Chase, and Discover.
- Discover it® for Students
- Journey® Student Rewards from Capital One®
- Capital One® QuicksilverOne® Cash Rewards Credit Card
- Chase Slate® credit card
- Citi Simplicity® Card - No Late Fees Ever
- Discover it® Card
- Costco Anywhere Visa® Card by Citi
Store cards and student-focused cards have historically been much easier to get than travel rewards cards. And while the rewards aren’t as generous as the cards you’ll be applying for in the future; they offer a foot in the door to the world of points, miles, and free luxury travel.
It’s also worth mentioning that you want to keep any credit cards you receive early in your credit report that doesn't carry an annual fee, as they contribute to the overall age of your credit accounts. Closing credit cards you've held for a long time can put a dent in your credit score by lowering the average age of revolving credit accounts and lowering the total credit available to you across all credit accounts, which can raise your credit utilization ratio. If you have cards with no annual fee, it costs nothing to hang onto them.
Building your credit file takes time. From the first card application, you could be looking at 1-2 years to get your score up into the mid to high 700’s, gaining access to premium rewards cards, big signup bonuses, and awesome travel benefits in the process. Award travel is a slow burn, not a race. Take your time, diversify your credit, pay all your bills on time, and slowly build out a portfolio of rewards-earning credit cards to help you reach your travel goals.
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