The number one thing people ask me when seeking information on getting into travel hacking is “how will it affect my credit?” Most people hear the system of applying for credit cards to earn points and immediately become skeptical, assuming it will

1) Hurt their credit score

OR

2) They will be denied

We can all agree that having good credit is important and something we strive for. It helps when determining a loan for a car, a mortgage for a house or ability to rent an apartment; all these big adulting things that we encounter in different seasons of our lives. 

Firstly, and most importantly before we go any further,  there are 2 golden rules to live by in travel hacking and that is:

1: NEVER go into debt

2: ALWAYS pay off each statement in full each month!

These are non-negotiables. It is also on of the reasons that regardless of applying and opening new credit cards, your credit will remain healthy, and oftentimes thrive.  🚀

If there is one thing to know, it is that if you are not able to pay off your monthly statements in full or if paying off a minimum spend on a new credit card is going to cause you to overspend or accumulate things outside of your budget, you need to abort your mission. Interest on travel credit cards is through the roof, so never carry a balance.

Now that we got that our of the way, let’s talk credit scores. Credit 101: because knowledge is power.  What effects our credit scores and by how much? There are 5 factors that are taken into account when determining your credit score:

Now all of these factors are not made equal as indicated above. It is why the simple act of opening a credit card does not equate to lowering your credit; there are always other factors involved. A hard pull on your credit is done when applying for a new credit card. This can slightly lower your score but it is a small impact,  is temporary and recovers quickly when the other factors are factored in. 

A track record of paying your bills on time consistently is the highest piece to a good credit score, this is payment history. It is why you must be able to pay off minimum spends and monthly statements each month without fail.  💵

Amount owed is just that: any debt you carry will influence your credit score. This is why paying off all statements each month is part of successful travel hacking. 

The longer your credit history exists, the better your credit will look. For this reason, you do not want to always cancel your credit card, even if you do not use them as your primary cards. Full disclosure- before I learned this rule, I canceled my longest running card ever!  It had been open for a decade and as soon as I realized what I’d done, I called to try to reinstate it but was denied. Fortunately, it only decreased my credit score by 2 points, which is why it’s important to understand how credit is calculated, but still; I wouldn’t recommend doing what I did!

Credit mix refers to the types of credit you have. This can be a mix of loans from credit cards, mortgage loans, installents, etc. It is only 10% of your overall score and often isn’t a huge factor. 

Finally, new credit which is what most people think of when they worry about opening new credit cards as it relates to their credit scores. It is true that an application for a credit card will cause an inquiry to be placed on your credit and depending on other factors, this can lower your score. These inquiries remain on your record for 2 years, however FICO only looks at the past 12 months. Inquiries usually have a small impact. Additionally, opening a lot of cards quickly can cause a shift in your score. This is because if you are newer to credit cards and don’t have a long standing credit, opening new credit cards will change your average length of credit history and can affect your score. Length between opening cards vary by personal preference, most say 45-90 days is safe.

Credit utilization is how much credit you’re using compared to your total credit limit. Let’s say you open a credit card primarily for the minimum spend. You have now increased your total credit limit. If you do not use that card much, your credit utilization is low and thereby can increase your credit score. 

Using travel credit card points and miles is meant to save money by using regular expenses and some strategic spends to earn credit card points. If you find you are spending extra or unable to manage payments in full, it will not serve you to open credit cards in search of earning points for travel. It is also important to know that everyone has different comfort levels. Some feel more nervous than others. Some choose to spread out credit card applications more so than others; it really is about your personal comfort levels. 

*This article is using information based on FICO scores. Not all credit is determined with FICO, however it is the industry standard for credit scores.

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