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The ability to open travel rewards-earning credit cards and take advantage of the many benefits that they offer requires that you maintain an excellent credit score. In addition to valuable points and miles that you can redeem for travel, these benefits include airport lounge access, travel insurance, and free or discounted companion airfares.
Even if you don't need or want to open a ton of credit cards, managing your credit score is still important in other parts of life such as renting or buying a home. There's a lot to know about managing your credit score and best practices to keep your score high. Here are our best tips to help you do just that.
The Importance of Managing Your Credit Score
The importance of maintaining a great credit score can't be overstated, especially when it comes to using credit cards to earn points and miles.
The first thing you should do when you're ready to start managing your credit score is to understand where you currently stand by getting a snapshot of your credit score. From there, you'll want to understand exactly what goes into calculating your credit score and what you can do to improve or maintain your score.
How To Check Your Credit Score Online
MyFICO
One popular way to check your credit score online is through myFICO, which provides you with your official FICO score from up to three credit bureaus. This is the same service that roughly 90% of lenders in the U.S. use to determine your creditworthiness. It's the easiest way to see the same data that lenders will be using to assess your credit card applications. In order to see your FICO score from all three credit bureaus, you'll need to sign up for membership starting at $19.95 per month.
The free version of myFICO, however, is an option for receiving not only your FICO score from Equifax but also your credit report. This version also includes credit monitoring and is a great option for getting a snapshot of your credit score.
Credit Sesame or Credit Karma
Companies like Credit Sesame or Credit Karma are completely free and allow you to retrieve your credit info. They also offer a wealth of information about what is affecting your credit score. Additionally, they provide tips and tricks to help raise your score. Credit Sesame and Credit Karma don't provide your FICO score, but rather your credit score based on the VantageScore model, an alternate credit scoring model based on all three credit bureaus. The FICO score is specific to each bureau.
We highly recommend signing up for a service like the ones mentioned above. Services like this provide additional tools and a broader picture of your financial situation with data from your credit reports.
Options available through your bank
Your bank where you have an account or a credit card may provide you with free credit services as well. A good example of this is Chase Credit Journey, which is available to Chase bank account holders and credit cardholders.
Your best bet is to monitor your credit through multiple sources or all of the sources listed here. That way you can see what possible variations in your credit score or report might be affecting your creditworthiness.
One helpful note: When getting ready to apply for a new credit card, check your score with the bank you're applying with if you already have another account with them. This ensures that you see exactly what the bank is taking into consideration for your application.
How Credit Scores Are Calculated
Credit scores are complex, compiled using your lending history and financial data. If your credit score is suffering, the first step to improving it is to understand what factors go into your score in the first place.
Here are the factors that are taken into account when determining your credit score:
- Payment history (35%): Lenders are looking for “on time, every time” customers. Late payments represent a higher risk, and anything over 30 days will start to impact your credit score.
- Amounts owed (30%): This number is not calculated on the raw sum of money owed. Instead, it's calculated based on your utilization rate, or the proportion of available credit to how much is being used. Lenders are looking for utilization rates under 30%, which will earn you a better credit score. Note: This doesn't mean you should carry a balance. Your utilization is reported every month, typically when your statement closes. It shows how much of your available credit you utilized in the past month.
- Length of credit history (15%): Calculating the average age of your credit accounts, this takes into account the length of time you’ve had accounts open. Further, it factors in how often accounts are used, plus the length of time that individual accounts have been open.
- New credit (10%): If you’ve opened multiple accounts recently, or made inquiries (known as hard pulls), this is where they show. Your credit score will traditionally dip when it shows several new accounts added in quick succession — especially if you don’t have a long credit history. Note: The impact of these inquiries starts to fade immediately. Over one year, those dips from inquiries are gone.
- Credit mix (10%): This takes into account your entire lending mix. This includes items such as credit cards, personal loans, finance accounts, and mortgages. It also includes external factors, such as being a guarantor or authorized user on another account.
Tips to Manage Your Credit Score
Always pay your account on time
The single most important factor in managing your credit score is paying your accounts on time. Never let your payments fall behind. You can even set up automatic payments each month or alerts to remind you to pay your credit card. Additionally, personal finance software like Mint or You Need A Budget, helps you to keep track of what's due (as well as other financial and budgeting organizing).
Keep credit utilization under 30%
Even better, aim for under 10%. Studies have shown that keeping credit utilization ratios under 10% gives you the best possible chance of achieving an 800+ score (considered “exceptional”). It's also worth noting that keeping the balances on your credit cards low can potentially save you thousands in interest over the lifetime of an account.
Downgrade rather than close accounts
Closing accounts can have a negative impact in two ways. First, you might have less available credit which might increase your credit utilization ratio. And second, it can affect the average age of your accounts, especially if you close one of your older accounts. Rather than cancel a credit card, look to downgrade to a card from the same provider that is a better fit for your current financial position.
Set regular times to assess your credit score
One of the worst things you can do for your credit score is to ignore it. Setting bi-monthly or quarterly dates to monitor and assess your credit score will help you manage it and make plans to raise it. You can stay on top of things that may be negatively impacting your score by catching them early during these check-ins. It’s also an excellent way to prevent fraud.
How to Fix Bad Credit
Fixing a bad or less-than-ideal credit score takes time to fix, above all else. Luckily, however, there are a few tips to help fix a credit score that needs a little TLC.
Make on-time payments
Even if it's just the minimum payment on a card that you can't pay in full each month, paying on your due date is very important. On-time payments and payment history are the largest factors that credit bureaus take into consideration when calculating your credit score.
Lower your credit card utilization ratio
This can be done in one of two ways. For the sake of paying less in interest fees that accumulate from carrying a balance each month, you can pay down your credit cards. Or, you can request a credit increase on the cards you already have. By increasing the credit available to you, the bureaus see you as having more credit than you have debt.
Be patient
At best, your credit score may jump a few points after you've made a large dent in any debt, but it will take time for creditors to increase your creditworthiness just from a low balance. Credit bureaus like to see a habit of on-time payments as well as a longer credit history meaning accounts that have been open and in good standing for a while. The only way to have either of these things is time.
Final Thoughts
Correct management of your credit score is one of the most important factors in a successful rewards travel plan. It gives you the highest possible chance of being approved for the best credit cards with the best perks as well as the lowest interest rates. This could potentially save you thousands of dollars in interest over the life of each credit account.
We highly recommend that your first step be to set up an account with a service like Credit Karma to monitor your credit scores and create a plan to get your score as high as you can. You’ll find a good credit plan gives you the best possible chance of success when taking on rewards travel as a hobby.
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I don’t know why anyone trusts Credit Karma. I’ve never used the service, and never will. I have a friend who was applying for a car loan for the first time. She kept telling me she was going to get a good rate since her credit was so high after checking Credit Karma. I tried to explain to her that she had no credit history (no rent/mortgage, no credit card, never had anything on her report that would indicate that she had ever had any debt before), but she wouldn’t listen. We get to the dealership and they can’t approve her for anything other than a super-high-interest car loan because *surprise* she had no credit history. If she wanted a good rate then she needed a co-signer.
Moral of the story: I would rather pull from each of the 3 bureau’s (once per year is free) and rely on the reports I receive from the credit cards I have. I’ll never trust Credit Karma.
Good credit = the business of life.
Always nice to learn about ways to optimize our credit scores. Thanks!
Such a good overview. Probably should’ve mentioned to stop applying for cc at least 6 months before a loan just so your score can recover
Rob, 6+ months is a good guide, and in reality, a year is best as the impact from any inquiries should be totally gone and any financial institution would see that you haven’t been seeking out credit recently.
Wish I knew this before I cancelled my 15+ year credit card.
The good news is that your card will remain on your credit report for another 7 years after closure — just keep your other oldest ones open 🙂
I am more careful and very observant of how I use my credit cards. I have always ensured now that my credit card bills are always paid off at the end of every month.
Considering that so many credit cards now lets one see the FICO score for free, one should always monitor for any sudden changes in case there is possible fraud.
If my wife were to add me as an authorized user on her credit card, would it impact my credit score? I sometimes see credit cards offering a 5,000 point bonus for adding an authorized user, but not sure if it’s worth it if it will impact my credit score.
Yes, it would. The card would make its way to your credit report. That said, if she removes your authorized user card at some time in the future you could make a case to the credit reporting agency to have the account removed from your credit report and you were never liable for it so it shouldn’t be on your credit report.
excellent question. Does this mean there is no need for my wife and I to get separate credit cards?
And if I continue to maintain my credit card properly for which she is an authorized user would help bump her credit?
My family has just gotten to the point where we can afford to pay the bill every month. Much harder to do with kids, college loans, car loans, house payment, etc. Either way I was always told by my parents to pay on time the credit bill and so kept my score high. Now I can take advantage of the great cards coming in with rewards, for instance, Chase Sapphire Reserve. I love how you guys remind us and update us with info. We all kinda get caught up and forget to look at things and then you find out oops, fraud etc. Plus, keeping an eye out helps figure out if your credit score all of the sudden dips you can panic…I mean…search and find out why ;o)
My utilization is under 10%. Unfortunately this can be done by acquiring too much credit. Is there an income/available credit ratio anyone uses?
Someone told me they know someone denied a loan because their $50 000 available credit was treated as debt.
Jake, you’ll never find income information listed on a credit report. I’d be skeptical of the information you received about that $50k credit treated as debt. I’d think there could be other circumstances that prevented from receiving the loan such as income level, other committed debts or credit history.
Than anyone can stay under 10%. I would have to double my spending to hit 10%.
I read somewhere credit scores are more friendly if you pay monthly. But I pay biweekly. This helps keep my ratio down plus I catch surprises and keep them manageable.
You want your utilization to be greater than 0% but less than 30% at all times. Under 10% is a sweet spot. Scores are definitely not more friendly if you pay on a monthly basis, but rather if you have high utilization one month and you happen to pay early before your statement is cut you’ll see a reduction in the utilization posted on your credit report.
I have a credit score of 815 from one agency (which I obtained from my citi card’s website) and 790 from another (I got this score from my amex card’s site). For purposes of being approved for a new card, does this slight difference in scores between two agencies make any difference?
This is quite normal — especially based on when these scores are generated, from which credit report they’re pulled from and which model was used to create that score. You’ve got excellent scores either way 🙂
Just make sure you have the money to pay off your credit card bill every month.
It is frustrating to have a focus on mix of loans when all I have is a credit card. Paying off auto loans, mortgages, etc really counts against someone. Even opening a new credit card is still the same kind of debt. What do you recommend to offset the mix of loans?
Honestly, not much you can really do. You could look to open up a personal line of credit with a bank, purely to have access to it and have the account exist / report to your credit report. That said, if you have a good/excellent credit score, doing this really isn’t worth the effort. While it is unfortunate that this a factor that prevents a credit score from rising, it is also important to realize that you don’t need an 850 or 900 credit score to receive access to the best loans at the best rates.
Besides BofA and Barclays, which CC issuers offer free FICO scores?
Both BofA and Barclays claim to get their data from TransUnion but they use different versions of the FICO score it seems. It’s all very confusing.
John, many do including Amex, Citi and Chase as well.
Discover also supplies free credit score.
Thanks for this article – I haven’t checked my score in a while and have been looking for information on how to best check
would love more about the impact of canceling a card
I have set my credit cards accounts to Auto-Pay, no late fees.
Good article for understanding how credit score is calculated. I always wonder if I should close some credit cards that I have not used for long time.
Good write up on the basics.
These type of credit report access companies are very beneficial. They can show up errors and discrepancies which you may not know about effecting your applications for more important mile earning credit cards.
Habit is the key. Pay bill on time!
In keeping my FICO score at about 800 or higher, I’ve never been turned down for a new credit card. In doing so, I haven’t missed out at numerous generous bonuses in the form of miles or points.
I just stared opening cards over the past year. Plan to try to get annual fees waived to cancel cards. It seems logical that I should try to shift credit limits to other cards as I cancel so I don’t impact my credit score. Does this work?
Yes, it works. If you have a younger/thinner credit profile this makes sense. If you have a long credit history, this really isn’t needed.
It also makes sense if you carry any kind of balance on any of your other cards. If you cancel a card, your total available credit goes down and so any balances on other cards increases your total credit utilization (balances/total credit available) which will drop your score.
My credit report is always stuck between 790-805… I’m in the sweet spot in ALL categories.. what gives?
do you have a mortgage, auto loan, and/or student loan?
Stuck at Excellent isn’t too bad 🙂
I am subscribed to Credit Karma and i am super satisfied with their service!
I’m really surprised that the one official source of getting your credit report, AnnualCreditReport.com, is not mentioned here. The free sources such as Sesame, Karma, etc., are good, but they should not be solely relied upon. Everyone should receive and then carefully review their reports from all three of the major bureaus.
AnnualCreditReport.com is key for you reports — but they’re only once a year and give you no indication on your credit score. Definitely use the site though.
Thanks for the analysis.
A question concerning the credit utilization, the time frame taken into consideration is typically one month or one year?
I mean not all the months my credit utilisation is under 30%, but considering a full year it should be under 30%.
You should keep it under 30% at all times if you can as your credit score is calculated on demand throughout the year.
I’ve even see balances impact my credit score mid month before I was even mailed the bill. Some credit card companies report balances weekly and its the current balance including any recent purchases. If balance goes up, and your score gets pulled coinciding with a recent increase in balance between statements your it will lower your score.
This likely is not related to your balances on a weekly basis — credit card balances are reported monthly, not weekly. This could be that you have multiple card accounts reporting balances at different times of the month (in most cases when your monthly statement closes). For less variation, you could ask your card companies to align your statement dates at/around the same day every month.
MyFICO.com has been a great service for me! It may be pricey but buying the service every year using the Alaska Airlines shopping portal at 20x points per dollar is a great way to earn some miles and keep on top of my credit score!
It’s quite easy to get excellent credit, just have to be diligent about your habits.
New credit is only weighted 10%! Very interesting! thanks for the info.
very helpful and clear.
#1 Rule SO many people ignore: ALWAYS pay your credit cards each month!
Agreed! Carrying a balance and being charged interest at some mind-boggling rate 10%, 15%, 20%, etc. is exceedingly financially detrimental and should be avoided at all costs!
Exactly! One should always treat a credit card as if it were a debit card. Only put on it what you can actually cover. Unless, of course, the account is under a 0% APR promo period and you’re sure that it can be paid off in full by the time the promo ends.
In general, I think smart people are going to handle their credit well. That goes for whether they are avid card/miles/points users, or just casual users.
most credit card accounts now give you free credit score when you are online
Very useful and helpful article.
Now I have a better understanding of how credit scores are calculated.
Thanks for the post!
Chasing miles and points through credit cards have allowed me to drastically improve my credit score in short time period by having several large credit lines which I pay on time.
Solid basic overview.
Agreed and it’s always good to refresh your knowledge.