A really common thing that comes up when I start talking to people about the excellent rewards you can harvest from credit card offers and programs is “Won’t that hurt my credit score?” There are a lot of misconceptions among people about what will help or hurt their credit score including the belief that having too many cards or accounts is a big problem, when it may actually boost your score by helping reduce your credit utilization by increasing your amount of available credit across all cards thus making your usage of a percentage of your overall credit lower. I think there are many reasons for this such as folks who are Dave Ramsey devotees, and his advice has become a defacto plan for folks trying to dig out of credit card debt. For that purpose, his advice is sound. In such cases where you are either in or at imminent risk of being in credit card debt and being unable to make payments, then it is not advisable to try to get into credit card rewards until those issues are tackled. The reason being that missing payments will tank your score, and most of the cards with these great travel deals have pretty terrible annual percentage rates and are a disaster waiting to happen if you end up carrying debt on them and especially missing payments which can trigger even worse rates. I’m by no means affiliated with Dave Ramsey or shilling for him, but debt snowball or avalanche techniques combined with sufficient income and cost cutting are a sound route out of debt.

Why do you want good credit?

A good credit score is useful because it can help you with securing housing, employment, and certain offers and cards that you would otherwise not be able to get that can be very rewarding if used responsibly. It is a privilege to have a good credit score, and once you have it you can harvest it to your advantage by leveraging these offers to get a big upfront points bonus or other perks. The banks that provide these travel rewards cards are not dumb, and they are giving you these offers in the hopes that you will carry some debt on them and pay the excessive percentage rates on your debt.

What is a good credit score?

Firstly, you have to know what a credit score even means. There are multiple common methods of scoring from the traditional FICO (Fair, Isaac, and Company) score to the newer VantageScore which are commonly used for credit or loan approvals. Then there is opt-in credit scoring using UltraFICO which can be helpful if you have bad credit and want a second shot at an application.

Your credit rating is determined by the three CRAs (credit reporting agencies) also known as bureaus of TransUnion, Equifax, and Experian. They may each score you a little differently at any given time, and do not share data between each other instantaneously. When you apply for cards, the bank offering the card is typically relying on one CRA to asses your worthiness for a given application.

The broad credit score ranges are as follows:

Range Rating
800-850 Excellent
670-739 Good
580-669 Fair
300-579 Poor

What if you don’t have much or any credit to begin with and want to start building it? Tools like Experian boost could be helpful in these cases. It links to your bank and uses your regular payment history for services you already use to boost your FICO score.

How do I get good credit?

There are 5-6 factors that go into your FICO score or VantageScore with a lot of overlap between the two. Keep in mind that the way these scores are calculated over time tends to be revised so don’t get too hung up on the specific weighting below and use it as a rule of thumb.

FICO % VantageScore Influence
Payment history 35 Payment history Extreme
Amounts owed 30 Age and type of credit High
Length of credit history 15 Percentage of credit limit used High
New credit 10 Total balances and debt Moderate
Credit mix 10 Recent credit behavior and inquiries Low
    Available credit Low

You can distill these factors down to something like the following:

  • Make payments on time.
  • Don’t owe an outsized amount of your total available credit. - More credit accounts can be better for this
  • Have both installment-based credit and revolving credit.
  • Have the longest credit history you can and keep accounts as long as you can. - Always try to convert cards to no-fee versions instead of closing the accounts after you’ve taken advantage of the offer and no longer benefit from carrying a card with an annual fee.
  • Don’t have more out in revolving debt than you can afford.
  • Minimize unnecessary credit inquiries.

The above can be overwhelming, so I highly recommend the use of some great free tools to regularly check and report on factors in your credit score. Credit Karma is a good choice for a standalone credit score app, and Mint.com is great if you are using it for account tracking and want credit score visibility too. Both are owned by Intuit and will provide you with a specific assessment of how your activity measures up in each factor that goes into your score, and both will show your free credit score daily from two of the three credit bureaus. They can also show you your full credit report for free.