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Let’s Talk About Credit

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DISCLAIMER: I am not a credit analyst. The information below is based on my experience and the experience of others who earn miles and points.

Yesterday you read about the opening of 20 credit cards in one calendar year. One of the first questions that springs to some minds is: “20 credit cards? Won’t that decimate your credit score?” Let me explain.

FICO Credit Score

Your credit score is made up of 5 influencing factors, which impact and make up your credit score, known as FICO. These factors will contribute to your creditworthiness. The more creditworthy you are, the more likely you are to approved for a credit card or various types of loans. 

  1. Payment History – 30% 
  2. Credit Utilized – 35%
  3. Length of Credit History—15%
  4. New Credit—10%
  5. Types of Credit—10%
Post 3.1 - credit pie
FICO Credit Pie

Credit Related Myths

Let’s get some myths out of the way:

Myth 1: Paying the minimum balance is okay.

FALSE

Paying a minimum balance means that you are: paying late fees, therefore taking away from the positive gain of the points you’ve earned; seriously hurting your payment history (30% of the pie!), and appearing to be borrowing more money than you have.

Myth 2: Won’t applying for a new credit card seriously damage my credit?

FALSE

Every time you apply for a credit card–or any type of credit–your score is dinged a few points. This falls under the “New Credit” category. The nice thing is that your score recovers pretty quickly (think 3-4 weeks) from those applications. You can minimize the impact of credit pulls by applying for multiple cards from the same bank on the same day.

Expert Tip! Applying for a Chase, American Express or Bank of America Card? Apply for two within the same calendar day and your credit pulls will merge from 2 (or 3) to 1 on the report.

Myth #3: Using my entire credit line is fine, as long as I pay it back on time.

FALSE

The biggest percentage of the pie is ‘credit utilized’. My recommendation would be to have no more than 10% of your total credit (amongst all your cards) post at any given time. This doesn’t mean if you have a $10,000 credit line you can’t use $8,000; rather, this means if you’re using $8,000 of that total line, be sure to pay off $7,000 or preferably more, (so your balance is $1,000 →  <10% of your total credit used).

Myth #4: Denials hurt my credit score.

FALSE

The only part about a denial that hurts your score is the credit pull, or “inquiry”. If you’re not approved, you’re not adding new credit or lowering the average age of accounts.

Credit Inquires and New Accounts

Let’s take a moment to talk about credit inquires. Every time you apply for credit, the bank will pull your credit report from one of the three major credit bureaus. Credit inquires (only 10% of the pie) slightly effect your overall score. Don’t worry–even with a denial (Myth #4), your score will bounce back.

Opening up new accounts is not completely risk-free.

New accounts on the other hand, do affect your score. They also fall under the “new credit” slice, but more importantly, they affect the average age of accounts–15% of the pie. Every time you successfully open up a new credit account, it will lower your average age. Tools like Credit Sesame/Karma show you your average age.

The two most important factors affecting your credit score and health will always be your amount of credit used and history of on-time payments. Keep those in check and you’ll be on your way to a health credit lifestyle.

Tools I Use

There are three major credit bureaus: Experian (EX), Transunion (TU), and Equifax (EQ).

Monitoring if your real credit score and report costs a fee, but now several banks and credit card issuers provider their customers with free scores updated every few weeks:

  • AMEX: Provides access to Experian credit score
  • Chase: Provides access to Experian credit score only for Slate cardholders
  • Citi: Provides access to Equifax score with many of their products
  • Discover: Provides access to Transunion score with many of their products
  • Barclays: Provides access to Transunion score with many of their products
fico tu barc
My Transunion score, provided free by Barclays

Chances are you have a card from one of the above banks. Don’t be super concerned by your score–checking it everyday will only drive you crazy, but it’s a good tool for monitoring nonetheless.

Free websites like Credit Karma and Credit Sesame do not provide you your real FICO Score, but they are great places for monitoring your EQ and TU credit reports–they’ll show any delinquencies, late payments, new accounts, percentage of credit utilized and recent inquiries on EQ and TU. Signing up is free and it’s a good way to keep eyes on your report.

Here is a great resource that shows you user data on what score people have had when applying for certain cards. You search based on bureau, state and/or name of card. I typically search by state (New York) and the card I’m looking to apply for:

Credit Pulls Database

Here are the results:

Credit Pulls Database results

Everything listed here is an approval. It goes without saying that not everyone who’s ever applied for this card has gotten approved, but it’s a good place to start if you’re on the fence about applying for a specific card. The comments also give further information. Can be pretty useful.

Creditworthiness & Consumer Responsibility

The above information can help you repair your creditworthiness if it’s been damaged, but also help to allay your fears about applying for credit cards or anything else related to your credit health.

The most important aspect to maintaining a solid credit score, best rates and highest chances for approval is to be responsible with the credit allocated to you as the consumer. The more responsible you are with the credit, the less likely the banks will view you as a risk. Less risk means more approvals for you, and ultimately more rewards.

There’s a lot of information (854 words!), but one last piece of information: if you’re going to be applying for a large loan (refinance, home equity, mortgage, etc.) you may want to think about the volume of credit card applications you are, or will be pushing.

Feel free to ask any questions in the comments!

-The Miner

Up next on Mining for Miles: “Beginner’s Guide Part 1: Everything You Need to Know to Get Started”.


2015: A Year In Review, Earning and Burning Over 1 Million Miles

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It was a tremendous year for loyalty program and credit card enthusiasts. There were some ups, but many downs. Manufactured spending opportunities withered (goodbye, Redbird) while many others went underground to keep their tactics hidden. Delta continued to butcher its award chart and signaled the possibility that they would go revenue-based (like Southwest and JetBlue).

The last of the great airline mergers between the legacy airlines occurred and, to American and US Airways’ credit, it went off smoothly. We knew that it was only a matter of time before American would devalue their award chart—and they did, but it was not as severe as we thought it would be.

As major banks upped the competitiveness and wallet-worthiness of their cards (hello Citi Premier and Prestige and American Express Gold Card), other banks began to clamp down on churners—Bank of America and Chase. We saw an increase of really solid sign-ups including the semi-public 100,000 AMEX Platinum offers and 50,000 Citi ThankYou Points on both the Prestige and Premier cards.

I’ve been involved in this hobby since July 2013, after graduating college. The first credit card I opened was the Chase Slate—not a points-earning card, but a no-fee card I knew I can keep forever. Six months later I applied for the British Airways and Chase Freedom cards. Approved for both, I took another six months before I applied for my next cards. And then six months later, another few cards.

In 2014 I applied for, and was approved for 9 credit cards.

Fast forward to 2015: I more than doubled that with 22 applications and 20 approvals.  It also helps to have a significant other who can open up cards as well. She applied for, and was approved for 9 out of 10. In January I made a resolution to crank up the number of applications from 2014. There was some risk involved, a lot of creative thinking on how to reach the required spends, but in the end, the numbers say everything.

So without further ado…

A year in numbers:

NameEarnedRedeemedTypeComments
Delta Skymiles153,00035,000Airline
AAdvantage Miles176,000207,500AirlineRedemptions made in 2015 but earned 2014
Alaska MileagePlan117,50057,500Airline
United Mileage Plus115,00030,000Airline
Southwest RR110,000110,000AirlineCompanion pass
British Airways48,000AirlineRedemptions made in 2015 but earned 2014
Hawaiian51,000AIrline
AMEX MR200,000140,000Transferable
Citi ThankYou Points106,000104,000TransferableRedemptions made in 2015 but earned 2014
Chase Ultimate Rewards60,000TransferableTo be redeemed
Hilton HHonors49,000HotelTo be redeemed
Marriot Rewards166,000HotelTo be earned
IHG Rewards81,000Hotel
Hyatt Gold Passport12,000Hotel
Starwood Preferred4000Hotel
Arrival+46,00044,000Cash back
Total1,382,500840,000
Number of flights36
Distance flown47,458

*Two Hyatt and two Hilton nights were also earned via credit card sign ups
So looking at the numbers, I still have a decent stash of points/miles—enough for any last minute trip to Chicago or wherever, that we would need to take. (Notice the lack of Ultimate Rewards earned this year—a post for another time.)

The most exciting thing for me to see that the approximate distance flown is enough to go around the world at least once!

GCMAP 2015

Looking Forward:

For 2016, I have our travels booked until September which clocks in at 35,000 miles.

With some well-timed applications and the proper card(s) for spending, you too can go to these places, and more. Future posts will include best uses of miles, how to earn and where to spend, trip reports and more.

Thanks for your support and I can’t wait to see what next year brings!

-The Miner

Tomorrow on Mining for Miles—“20 Cards?! But what about your credit score?!”