Traveling With Credit Card Points- Video #6- Tips For Managing Credit Score While Travel Hacking

So last video here in this course, we’re gonna be talking about how credit score is derived. So when you’re opening and closing credit cards, which is the best thing to do if you wanna do this continuous level year and really just never pay for travel again, we do have to be aware of your credit score.

Now I would say for a lot of our clients, credit scores are relevant. They either have their house paid off or if they are paying off their house, it’s the house they plan on being in for a long time. So really the only reason credit matters if you’re taking out a loan.

So if you’re not taking out a loan, you’re buying cars and cash or you already have in the house you’re gonna be in, credit score doesn’t matter. But I will point out that really anything above 760 is just bragging rights.

Generally speaking, if you have a credit score of a 760, you’re gonna get the best deal on interest rates, you know, whether it’s a car loan, home loan, getting approved for new credit cards, et cetera, you’re good to go. So there are really five factors that go into determining that credit score.

So we wanna make sure we monitor this. There’s some free websites to do so as well. So Jameson, give us the first one. What’s the first thing that goes into determining that credit score? The payment history is just making all your payments on time.

Okay, and second factor is utilization. So for example, if you have one credit card available for $10 ,000 and you carry a $5 ,000 balance, your utilization is 50%. We really wanna utilization below 10%. So if you have $100 ,000 available and 5 ,000 outstanding credit card, then utilization is 5%.

This really doesn’t matter if you’re just paying the credit card off month to month, but actually because of utilization, having more credit cards open, surprisingly really helps your score. If a lot, the majority of those cards have a zero balance.

But we always recommend only have a credit card if it’s revolving, meaning you put it, you pay it off, you put expenses on it, you pay it off right away. Jameson, what’s the third one? The length of your credit history.

So it is not only, if you opened a card when you were in college and that was 20 years ago, that’s good, but it averages the length of all your cards. So if you opened a card 20 years ago, but then opened five cards two years ago, it’s gonna average all of those lengths out to how long you’ve had.

Perfect, so if you cancel that one 20 years ago, you only had the five new, your length of history would be very low, which would be bad. If you kept the one forever from 20 years ago and you opened up five and then closed four of the five of the new ones, it would actually be good because then your length, average length of history would be bigger.

So that’s a low percentage of your overall score. I mean really if you just pay yourself on time, if you have a low utilization factor, generally speaking have some cards that have been outstanding for years and you at least have one that you keep open forever.

That’s really good. So that brings us to the fourth point and then what’s the fourth point? Yeah, the types of loans that you have out, whether it’s a home loan, car loan, other types of credit cards that you have, that all is gonna factor in.

Student loans, anything that you’re borrowing, got it. Okay, perfect, and then Jameson, close us out with the fifth. The recent hard credit inquiries, so that is like you can do a soft, there’s difference between a soft credit check and a hard credit check.

A hard credit check is like you’re applying for a loan or a credit card and they’re pulling your full credit history. A soft credit check does not show up on these inquiries. So soft would be like if you’re getting a pre -approval done on something, then hard would be like you’re actually signing a loan document or getting a credit card open.

Big difference there. So with that being said, if I’ve done this and there’s been some years I’ve opened up 20 to 30 cards just literally in one year. And so sometimes your score will fluctuate 30 or 40 points, but after you open it and you pay them off right away, the score will then go back up 50 or 60 points prior.

So there’s gonna be some short -term variability in credit score if you’re really aggressive with this. Don’t do that if you are buying something within that timeframe, but if you at least had a six to 12 month timeframe that you’re not gonna be purchasing, new stuff such as a big car, new home, et cetera, then these short -term spikes or declines in credit score are irrelevant.

It’s kind of like the stock market we’re in for the long -term. You’d think about credit score exact same way.