A firm understanding of your credit score is the easiest way to improve it.
Which is why earning points and miles starts with your credit score. Fortunately, the widely held notion that more credit cards means a lower credit score is false – in my experience. My score has actually improved since I began earning miles.
Whether you’re a beginner or expert, this post serves as a useful reminder of your credit score, its components, and how to obtain - and then maintain - a high score.
Part 1: Know Your Score
This part is simple. Sign up to CreditKarma to view your credit score. The service is free and does not effect or compromise your score in any way. While not 100% accurate, the score is widely accepted as a legitimate gauge and can be used safely.
For our purposes, consider a score of 680+ necessary to have approval chances for top-tier rewards cards. Did I mention part 1 was simple? On to part 2.
Part 2: Understand Your Score
This may be the least fun yet most important part of earning points and miles. As a brief summary, your score is composed of six parts:
- Payment History – The #1 most important aspect of your score. Pay your bills on time, every time and you’ll receive an “A” in this category.
- Derogatory Remarks – These are negative marks on your credit, often resulting from outstanding debts, bankruptcies, etc. This is also often misreported by a credit bureau, meaning you’ll have a mark that is not accurate. Probably the easiest way to boost your score: find a mistake and fix it.
- Credit Card Utilization – Your balance versus your total available credit. For example, purchasing $1,000 on a credit card with a $10,000 credit limit would result in a 10% utilization rate ($1,000/$10,000) – the lower the percentage, the higher your score. Pay your bills in full and on time and you’ll receive an “A” in this category.
- Age of Credit History – One of the top reasons for denial of rewards cards: this is total length of credit history divided by number of cards. For example, two cards – one opened today and another opened 10 years ago – is an average age of five years. But two cards both opened today would have an average age of a day. The longer your average age the better.
- Total Accounts – Exactly what it means: how many credit accounts you have. One note, 20-25 open credit cards is not uncommon and can lead to a higher credit score than having under 10 accounts!
- Credit Inquiries – When you apply for a credit line, the business will “pull” your credit report to determine if they should approve you. This is considered a hard inquiry (as opposed to a soft inquiry which does not affect your score). These typically only reduce your score by a few points and have minimal impact on your credit score, but too many hard inquiries can be a red flag when applying for a new card.
I can't stress the importance of understanding the above factors. If you have any questions, comment below. But if you are ready, move on to part 3.
Part 3: Improve Your Score
For those with scores under 680, there are many ways to improve your score quickly. These options are in addition to establishing healthy credit-habit routines like not getting into debt and paying your bills in full - or close to in full - every month.
- Pay down your balances to (nearly) zero. This is essential for any mileage earning strategy and decreases your debt to utilization ratio. I try to always have a small balance on one card, making up no more than 1% of my available credit.
- Check if you have a derogatory mark. If you have one, immediately call the credit bureau to find out what it is and how to remove it. Often it will be a mistake; other times an old bill that went unpaid. Regardless, remove it and watch your score improve.
- Master the authorized user. See if you can be added to your parent/spouse/friend account. By becoming an authorized user, you inherit another person’s credit history - whether good or bad. The best part? You don’t even need the card. Have your parent/spouse/friend shred the card while you still reap the benefit.
If all else fails, apply for a card on my credit cards page to begin building credit (scroll to the bottom for credit-building cards). While not the best rewards value, there are still considerable deals in the mid-tier category.
Part 4: Let The Fun Begin
Yes, that's right - it is points and miles time. Once your score is above 680, you are ready to apply for credit cards.