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Credit Scores Guide

To earn a lot of points via credit cards, you need a good credit score and the ability to pay back the balance each month. People who fail to pay their credit card bills on time help subsidize large sign-up bonuses. 

Credit Scores

You can see your estimated score for free on Credit Karma. You can also see your TransUnion and Equifax report as well on their website. 

Credit ScoreRatingStrategy and Impact
850-750Very GoodYou should be approved for almost every card you apply for, but still remember the 5/24 rule.
749-700GoodYou are in very solid ground in this range. If stay in this range, you can easily rack up a lot of points.
699-670Pretty GoodYou will still be approved for most cards, but banks may worry about the number of hard inquiries.
669-580FairImprove your score or stick to our flight deals.
579-300Very PoorIf your score is this low, you should forgo any travel or credit cards and focus on paying off debt.

Calculation of Score

Your credit score is determined by one of the three main credit bureaus: Equifax, Experian, or TransUnion. Below is the methodology of calculating that score.

Payment History- 35% of Your Score– How often do you pay your accounts on time? Payment history is very important because lenders always want to be paid back.  Bureaus will look at (1) how late was the payment, (2) the amount owed, (3) how many missing or late payments you have, (4) when the late or missed payment occurred. If you forgot to pay your credit card bill (I always set mine to auto-payment), pay it immediately and ask the card issuer nicely to remove any potential negative marks from your report. If you have a long history with the card issuer of on-time payments, they will likely remove that negative mark. 

Credit Utilization- 30% of Your Score– How much total credit do you use? This is calculated by the amount you owe divided by the total amount of credit you have. This ratio is more focused on your credit cards and much less on your mortgage, student loans, or auto loans. When your credit card statement closes, most cards will report this number to the credit bureau and then you have 20-30 days to pay off that balance without any fees. It is best to keep this ratio under 10-15%. I pay some of my cards’ balances off before the statement closes, but leave some balance on 1-2 of my cards for my auto-pay to handle. 

Length of Credit History- 15% of Your Score– How long have you had your specific credit history? This part looks at your (1) oldest credit card, (2) youngest credit card, (3) the average age of all accounts, and (4) when certain accounts were used. Always try to have one or two cards with no annual fees and a long history. You do need to use this cards at least 1-5 times per year or the card issuer may shut your card down for inactivity.

Hard Inquiries- 10% of Your Score– How many new credit lines have you opened recently? If you have a large amount of recent hard inquiries, some lenders may decide that you are too risky. They don’t want you racking up a lot of debt and then declaring bankruptcy or disappearing. Hard Inquiries occur when you (1) open up a new credit card, (2) apply for a mortgage or auto loan, (3) apply for overdraft protection for a bank account, (4) student loan or refinancing applications, and (5) sometimes when you apply for an apartment complex. Soft Inquiries does not affect your credit score and occur when your credit report is pulled but is not used in a lending decision. Examples of this are: (1) signing up for a bank account (with the main exception of Charles Schwab because you also get a brokerage account), (2) setting up a CreditKarma account, (3) pre-qualified credit or insurance products, and (4) background checks.

Types of Credit- 10% of Your Score– What types of credit do you have? There are two main types of credit: installment and revolving. Revolving credit is your credit cards or specific lines of credit. Installment credit is your mortgage, student, or automobile loans. 

Ways to Improve Your Score

Pay Off Your Debt– This will have the biggest impact on your score plus it will save you a lot of money in interest. 

Pay Your Credit Accounts On-Time– If you are struggling to remember to pay your credit cards, set up automatic payments from your bank account to the credit account. 

Obtain Your Credit Report– You can get one free copy of your Equifax, Experian, and TransUnion score each year at Check to see if there any inaccuracies in your report. If there is, you need to dispute the information with the credit report. I also recommend setting up your CreditKarma account and downloading Experian’s free mobile app, because those free services will notify you when a new account is created.

Don’t Close an Old Account– If you need to close a credit card, close a fairly new one over an older one. This will help improve your length of credit history.

Authorized Users– If your credit file is very thin, then consider having a parent or spouse add you as an authorized user on their oldest card that they always pay in full and on time. They can throw away your authorized user card and you will not be responsible for any debts associated with that card. Authorized user spouses will almost always get reported to a credit bureau, but only sometimes will a family member’s authorized user account gets added to their own credit report. If it is successfully reported, it boosts your credit history.

Locking Your Credit Report

You can now freeze and unfreeze your credit reports for free at TransUnionEquifax, and Experian. score for free. This can be beneficial to prevent identity theft. When you place a freeze on your report, you are given a PIN or password to unfreeze your report or allow a specific third party to access your report. 

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