This is the first post of a four part series that will walk you through the steps to launching credit card applications to earn miles and points. This post will cover the basics on preparing for the application process and double checking your credit health to ensure that everything is up to par before applying for credit cards. The 2nd post of the series will cover how to evaluate what cards to keep and what cards to cancel before applying for more. The 3rd post will be a summary of my recent applications, including the results, and dealing with the reconsideration lines. I will have a final and 4th post analyzing the impacts of my credit score and how credit card applications affects it.
I am already onto my second round of credit card applications this year, and things have been going fairly smoothly. The first round of cards that I applied for was in December, so I met all the minimum spends and received the points by March. There were some great offers available and some that are soon to be ending, so I decided to apply for another round of credit card applications.
There are several reasons why I decided to do another round of applications so soon, since normally I only do two rounds per year just to keep things simple. I went in for another round in March because I received a great targeted offer in the mail for 70,000 Marriott Rewards points, a hard inquiry dropped off my credit report, and the US Airways offer was likely to disappear in the coming months. Sometimes things just seem to fall into place, and I decided to take advantage of all the right conditions that would likely get me approved for the top offers that I wanted.
Before I ever start a round of applications I always like to review my credit score, what current cards I have and decide which ones to keep and cancel, and which top offers will benefit me the most during this application round. I want to make sure everything is right before clicking submit on all the applications, to ensure that I get the satisfactions of an approval and lots of new miles and points to use for travel.
An essential part of earning credit card rewards and welcome bonuses is building and maintaining a strong and high credit profile. I hope to demystify what exactly your credit score is, provide some simple ways to check it, and how to evaluate if it is good enough to apply for multiple credit card applications. This post is targeted towards someone rather new to the credit card rewards game, and will provide the basis for understanding your credit and how to improve it.
Understanding the FICO Score
The Fair Isaac Company or FICO, collects all of your credit information from loans, credit card history, late payments, etc. summarizes your history and then sells them to entities that request a credit check as a FICO score.
VantageScore is another credit-scoring company, and you will see this listed when you monitor your credit score on Credit Sesame or Quizzle. The most popular and widely recognized score is the FICO score, so this is the basis of what you should judge your credit score on.
FICO scores range between 300-850, and the Fair Isaac Company uses multiple indicators to determine your individual score in this range. The idea is to create a system that allows people to compare apples to apples when comparing credit, this way a company can look at your FICO score and judge whether or not to approve you for a credit card or loan. This means that the FICO score is the best indicator that you can use to judge whether you will be successful when applying for welcome bonuses and credit cards in general.
The FICO score is generally ranked on Credit Karma as:
Based on that range, it appears that the grades correspond, roughly, to:
750 – 850: A or Excellent
700 – 749: B or Good
630 – 699: C or Average
580 – 629: D or Below Average
300 – 529: F or Bad
A “Good” credit score is generally over 700 and will allow you to get approved for most credit cards. Credit card companies generally don’t differentiate much among scores between 720-850. With that being said, there are many variables that are taken into account and your total credit history is looked at when credit card companies evaluate your for approval. The minimum credit score that credit card issuers allow is kept secret and you can only find out when you apply if your score will be good enough.
The whole credit scoring system and what is needed to be approved for credit cards is generally kept very vague and there are no definite answers for a lot of questions people have. There are however, great resources such as the numerous mile and point forums and blogs that provide personal feedback from trial and error. These resources are a great way to start to understand what is needed to qualify for credit card offers. You can also do more research on creditboards.com.
How Is Your FICO Score Calculated?
The best way to understand your FICO score is to break it down into five main factors that influence the score.
35% of your credit based on your payment history. This is the largest factor that determines your credit score, and is simply based on whether or not you pay off your bills (credit card, mortgages, etc) in full. For this reason it is vital to pay off your bills and credit card in full every month to maintain a strong credit score. If you are not diligent about paying off your credit card every month in full, then the points and miles game is not for you.
30% is based on the amount you owe. Included in this are the types of accounts you owe them on, credit utilization, and other debt related items. This means that the record of the balances you carry has almost as much impact to your credit score as your payment history. Your credit utilization is used by determining the proportion of your credit lines that you use. Generally, the higher the amount you owe in relation to the total amount of credit, lower your credit score.
15% of your credit score is determined by the length of your credit history. It is based on how long you’ve had certain types of accounts and time since activity. The longer you have maintained active accounts, the higher credit score. This is why it is a great idea to start building your credit history as early as possible, and maintaining the oldest account you have open to help the average credit length. I suggest always to keep a credit card with a zero annual fee open to maintain a long credit life of your oldest card.
10% of your credit score is calculated by any new lines of credit. This can be in the form of a credit card, mortgage, or loan. Also included in this is new credit inquiries--this is why after applying for a mortgage or recently doing a lot of credit card applications your score may drop several points. Since credit inquiries diminish over time the impacts generally disappear from your credit report after 3 months.
10% of your credit score is based on all the types of credit you use. Included in this are all the different types of credit accounts you have, including credit cards, loans, mortgages, and any other lines of credit.
All five of these factors play a role in determining your FICO score and you can see the different weights of each factor outlined here. It’s clear as to which factors play the biggest roles and ones that are not as important, but with that being said, combined they will add up to determine your score. The better your score is in each section you will account for a higher overall credit score, but you certainly don't have to have a perfect history in all of these areas to have a score above 700. These are just areas to consider when you are building your credit score.
Easy Ways To Get Your Credit Score
Before applying for credit cards it is essential to know your current credit score. You need to know that it is high enough that you will likely get approved for the cards you want to get, and it is always good to keep track of your score before and after credit card applications.
There are several easy ways to monitor your credit score:
annualcreditreport.com - Every year each person in the US is eligible for one free credit report from each of the three major credit reporting bureaus --TransUnion, Experian and Equifax. This service will only get you a credit report and shows your history and activity, for an accurate score you must pay $19.95 through myfico.com (remember that FICO is a company).
Credit Sesame and Credit Karma - Each of these websites provide a free estimated credit score using an experian proxy. There are many other useful tools that show recent credit inquiries, risk analysis, and account activity. This score will not be the actual score the credit card companies will see when you apply for a card, but it provides a good estimate for you to use before applying. These websites make it simple and easy to track your credit score and activity before, during, and after applying for credit cards. Since they are free, you can check your score as much as your want.
Checking and reviewing your credit score is an essential first step when applying for multiple credit card applications to earn miles and points. There are no definite answers when it comes to calculating and improving your credit score. You can use the information and factors affecting your credit score given here to help you decide what you can do to improve your score if you are lacking in any of these areas. An integral part to building and maintaining a high credit score is to pay off your balance in full every month. A high score you will enable you to take advantage all the free travel you will earn when you are approved for all the great offers out there!
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