Tips for Managing Your Credit Score

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One of the keys to successful rewards travel is achieving and maintaining a healthy credit score. The most significant points and miles earning opportunities are tied closely to rewards earning credit cards, and in addition to the potential rewards, credit cards can also offer numerous benefits such as airport lounge access, free travel insurance, additional coverage for authorized users, free or discounted companion airfares, and more.

Maintain an excellent credit score

These are the core benefits and perks that make up rewards travel and acquiring credit cards to take advantage of the massive signup bonuses, amazing travel benefits, and ongoing rewards earning potential, only available to credit card holders, requires that you maintain an excellent credit score.

The Importance of Managing Your Credit Score

With all those benefits, points, and miles hinging on a great credit score, the importance of maintaining a good credit score can not be overstated for those wishing to pursue rewards travel as a hobby.

Along with signing up for an AwardWallet account to track the points and miles earned, one of the first things to do is getting a snapshot of your current credit score. There are several ways to do this which we’ll cover below.

Where to Check Your Credit Score

The first option is to use a paid service like myFICO which can provide your official FICO score. The advantage of myFICO is that it tracks your credit score with all three major credit bureaus, giving you the most accurate data available. It’s also the service used by roughly 90% of lenders in the U.S., so chances are you're looking at the same data that lenders will be using to assess any application. The downside is that myFICO is a paid service costing $29.95 per month, a hefty price if you’re just looking to get an initial snapshot of your credit score and the factors impacting it.

An alternative is to use a free service such as Credit Sesame, Quizzle, or Credit Karma (full suite of options). While these services won’t charge you to retrieve your credit info and can offer a wealth of information about what is affecting your credit score along with tips and tricks to help raise it, they, for the most part, don't provide you a FICO score, but rather a score based on the VantageScore model.

The third option is to use one of the free services offered as a credit card benefit. There are many card issuers now offering access to FICO information as a benefit, including most major banks and credit card providers. While these services are handy to check your info, we still recommend signing up for a service such as Credit Karma, as they provide additional tools and a broader picture of your financial situation with data from your credit reports.

How Are Credit Scores Calculated?

Credit scores are complex, built up using your lending history and financial data. And the bad news is, if your score is suffering from some adverse history, it can take time to turn around.

How are credit scores calculated?

The factors taken into account when determining your credit score, over and above income, are:

  • 35% Payment History – 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.
  • 30% Amounts Owed – This number is not calculated on the raw sum of money owed, but on your utilization rate or the proportion of available credit vs. how much is being used. Lenders are looking for utilization rates under 30%, which will earn you a better credit score. Even better, keep your utilization under 10%. Note: This doesn't mean you should carry a balance — your utilization is reported on a monthly basis, typically when your statement closes — it shows how much you utilized in the past month.
  • 15% Length of Credit History – Calculating the average age of your credit accounts, this takes into account the duration of time you’ve had accounts open and includes your oldest and newest accounts. It also factors in how often accounts are in use and the length of time that individual accounts have been open.
  • 10% New Credit – 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 a number of new accounts added in quick succession, particularly if you don’t have a long credit history. Note: The impact of these inquiries starts to fade immediately and over the course of one year those dips from inquiries are gone.
  • 10% Credit Mix – This takes into account your entire lending mix, including items such as credit cards, personal loans, finance accounts, mortgages, and external factors such as being a guarantor or authorized user on another account.

Other 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 and never letting payments fall behind, or even worse, defaulting. Setting up auto-payments, alerts, and using personal finance software such as Mint can help to get payments made on time, keeping your accounts in good standing.

Keep Credit Utilization Under 30% – And then aim for under 10%. Studies have shown that to achieve the 800+ credit score that is the nirvana of rewards travelers, keeping credit utilization ratios under 10% will give you the best possible chance of maxing out your credit score and could 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 by changing your credit utilization ratio, and second by affecting the average age of your accounts. So 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 plan how to raise it, and stay on top things that may be impacting your score by catching them early. It’s also an excellent way to prevent fraud by keeping on top of open accounts and applications and allows you to quickly intervene if you think something adverse has been added to your account by mistake.

Final Thoughts

Correct management of your credit score is one of the most important factors in a successful rewards travel plan giving you the best possible chance at scoring the best deals and interest rates, potentially saving you thousands of dollars in interest over the life of each credit account.

We highly recommend setting up accounts with services 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.

Tips for Managing Your Credit Score
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Comments

  • Solid basic overview.

  • 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.

  • Very useful and helpful article.
    Now I have a better understanding of how credit scores are calculated.
    Thanks for the post!

  • most credit card accounts now give you free credit score when you are online

  • 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.

  • Cathy Krasnianski says:

    #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.

  • very helpful and clear.

  • New credit is only weighted 10%! Very interesting! thanks for the info.

  • It’s quite easy to get excellent credit, just have to be diligent about your habits.

  • 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!

  • 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.

  • 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.

  • I am subscribed to Credit Karma and i am super satisfied with their service!

  • My credit report is always stuck between 790-805… I’m in the sweet spot in ALL categories.. what gives?

  • 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.

  • 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.

  • Habit is the key. Pay bill on time!

  • ADAM PARSONS says:

    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.

  • Good write up on the basics.

  • 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.

  • I have set my credit cards accounts to Auto-Pay, no late fees.

  • would love more about the impact of canceling a card

  • Thanks for this article – I haven’t checked my score in a while and have been looking for information on how to best check

  • 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.

  • 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.

  • Bertrand Say says:

    Just make sure you have the money to pay off your credit card bill every month.

  • 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 🙂

  • 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.

  • 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)

  • 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?

  • 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.

  • 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.

  • Wish I knew this before I cancelled my 15+ year credit card.

  • 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.

  • Always nice to learn about ways to optimize our credit scores. Thanks!

  • Good credit = the business of life.

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