Updated 21 July 2019
I have, roughly, 20 credit cards open at the moment but my credit score is excellent. So how do I have an ‘excellent credit’ score despite having so many open credit cards and continuing to apply for more credit cards?
Here are some tricks that may be difficult to fully wrap your head around and may take some time to comprehend but they work…
1) ALWAYS MAKE ON-TIME PAYMENTS
35% of your credit score is made up of your payment history. Can you pay your bills on time? If not, this hobby may not be for you. However, if you can, you will be greatly rewarded for your organizational skills.
Pro Tip: I arrange ALL of my credit cards to have the same statement closing date. If they all close at the same time, I don’t have to remember which cards I have paid, which cards I haven’t paid, when they are closing, etc. Because they are all on the same schedule, I’m able to make all of payments on time.
2) KEEP YOUR CREDIT UTILIZATION LOW
30% of your credit score is made up of your credit utilization. This simply means “how much of your credit line(s) are you using?” Let me give you an example. Let’s say you have 1 credit card with a $10,000 credit line on it. If you spend $9,000 on that card during the month, you’ve utilized 90% ($9,000 out of $10,000) of your available credit. You may feel like you’re a big baller because you spent $9000 in a month but the bank looks at it differently. The bank may start to wonder if you’re ‘high risk’ and not going to pay your bill.
Now let’s say you have that same $10,000 credit line but you only spend $1,000 during the month. You’re utilization is 10%. When you apply for new cards, the credit card company will view you as ‘low risk’ because you’re using very little of the credit you’ve been given.
So let’s expand on this concept a bit more….if you have 10 credit cards and each card has a credit line of $10,000 (thus $100,000 of available credit total from all the cards) but you’re still only spending $1,000/month like the example above, your available credit is high, while your utilization is extremely low. <—This is what you want!
PRO TIP: Pay off your credit card before the statement closes. The credit card company reports your utilization to the credit bureau when your statement closes. Let’s say that your statement is January 1-31. If you pay your card off on January 28th, and put very few any additional spend on the card between the 28th and 31st, it will close with a low utilization. This tip is super helpful when you have a low credit line.
3) KEEP SOME CREDIT CARDS FOR A LONG TIME
15% of your credit score is made up of your credit history. Credit cards issuers want to see that you’ve been using credit responsibly for a long time. Their goal is to determine if they can trust you with the credit you’ve been given and extend more credit to you. One aspect that comprises much of this is your ‘average age of accounts.’
The credit card that I have had the longest is a ‘no annual fee’ card. I, occasionally, put a small purchase on the card so it remains active but there is no reason to close the card. It doesn’t cost me anything and it continues to improve my average age of accounts.
So while I apply for a lot of new cards, it’s important to also keep some cards long term. This is why I highly recommend a combination of valuable cards that are worth paying annual fees on, as well as no annual fee cards which add value as well.
If you’ve been keeping track…that’s 80% of your credit score right there!
This is also the reason your score could actually be higher if you have a lot of cards than if you only have a few cards.
The last 20% of your credit score is made up of a combination of the types of credit lines you use and your requests for new credit. The former refers to having diversified credit lines (credit cards, mortgages, etc.) — the more variety you have, the better.
The only part of your credit score that will negatively be impacted by applying for new cards is your requests for new credit, whereby your score will be temporarily ‘dinged’ by a few points for the inquiry. After 24 months, the inquiries fall off your report and you’ll just reap the positive benefits of having a lot of cards.
I want to clear…credit cards offer some AMAZING VALUE but if you’re not organized, the fees will easily outweigh the points and benefits of the card. Swiping a credit card is easy. Paying off the bill should be easier. However, if you find that you are struggling to pay your credit card bill, I recommend that you quickly pay off your bill and do not use the card anymore. Debt is not fun and it will cost you more in the end.
A few years ago, my score was in the low 500’s (<—not quite sure how it got that low) and now it’s in the low 800’s. I highly doubt my score would be so high if I didn’t have as many credit cards as I do. Not only have credit cards allowed me to fly around the world in luxury but they’ve also improved my credit score.
If your friend and family are anything like mine (a.k.a. doubters and/or possibly haters lol), you can send this post to them so they can see how credit scores actually work in real life.
What do you think about these techniques? Have you had success using them?