- Courtesy of Holly Johnson
- The author, Holly Johnson, has 26 credit cards and a consistently high credit score.
- The most important factors that make up your FICO score include your payment history (35%) and how much you owe in relation to your credit limits (30%), she wrote. Hard inquiries from new cards usually cause only a temporary dip.
- Her favorite credit cards include the Chase Sapphire Reserve, the Hilton Honors Aspire Card from American Express, the Gold Delta SkyMiles® Credit Card from American Express, and the Chase Freedom.
- Also, she said there’s no real benefit for having a credit score of 850 – no matter what anyone says. Having “excellent credit,” or a score over 800, is more than enough to get the best interest rates and terms when you apply for a loan.
There’s no shortage of misconceptions when it comes to credit cards and credit scores, including the falsehood that having more than a few cards will spell disaster for your credit score.
My husband and I (and our businesses) have 26 credit cards to our names – but look at the TransUnion credit score I have on my free Credit Sesame account!
- Courtesy of Holly Johnson, via Credit Sesame
Credit Karma also lists excellent credit scores for me even though I have a ridiculous number of credit cards, so what gives?
- Courtesy of Holly Johnson via Credit Karma
More importantly, what lies are we letting people tell us about our credit scores and how they are influenced by credit cards?
You probably think someone with 26 credit cards is the last person you should be taking advice from, but I’m obviously doing something right. I don’t owe a single cent to anyone in my life – even my home is paid off. Plus, I earn more than 1 million points and miles in any given year – rewards I use to stretch my travel budget so I can travel four months out of the year.
If you’re angling to get more out of your cards this year but worried about your score, here’s what I think you should know:
Pay attention to the main factors that determine your credit score
While it is true that new credit card applications place a hard inquiry on your credit report that can ding your credit score, the effect is usually minimal. The credit factors you should pay the most attention to are the ones that have the biggest effect on your score: your payment history and how much money you owe.
Because your payment history makes up 35% of your FICO score, you want to make sure you’re paying all your bills – including credit-card bills – early or on time. If you fall behind on your credit card bills, you will hurt your score, no matter how many cards you have.
How much money you owe in relation to your credit limits – which is also known as your credit utilization – makes up another 30% of your FICO score. Generally, you’re supposed to keep your credit utilization below 10% to keep your FICO score in tip-top shape. That means you would carry less than $1,000 in debt for each $10,000 in available credit you have.
Pursue rewards only if you’re debt-free
You shouldn’t have any debt if you’re pursuing credit-card rewards. Because the average credit-card annual percentage rate (APR) is now well over 17%, it makes zero sense to pursue rewards and carry a balance.
Pursue points and miles only if you don’t have any debt. If you have credit-card debt, consider applying for a balance-transfer card that lets you score 0% APR for up to 21 months. Once you hatch a plan to pay off your debts and transfer your balances over, stop using credit cards until you are entirely debt-free.
Spread your credit card applications out
Hard inquiries on your credit report can ding your score in the short term, but the effects aren’t usually long-lasting. My husband and I still try to minimize the effect on our credit scores by applying for new credit cards only a few times per year – and always spreading them out instead of applying all at once.
We normally apply for new credit cards every quarter or every six months depending on our goals.
There’s no trophy for having a perfect credit score
Because I write about credit cards for a living, I frequently have people tell me they’re trying to achieve the highest credit score possible: 850 on most scoring models. It’s hard for me to understand why this is a goal, or why anyone would care. After all, you get absolutely nothing for reaching that threshold – no trophy and no congratulatory phone call.
The reality is, any score over 800 is considered “exceptional” with the FICO scoring model. Any FICO score between 740 and 799 is also considered “very good,” which means borrowers in this range are “at a great advantage in both the likelihood of getting credit approval and of being offered lower interest rates,” according to the MyFICO blog.
So shoot for an 850 score if you want. Heck, get your score printed on a T-shirt and wear it around town.
I’ll be over here maximizing my travel credit cards and not really caring about my score. As long as it’s always “very good” or better, and I am debt-free, I know I’m in good shape.
Curious which credit cards I use the most and why? Here are some of my favorites:
- Chase Sapphire Reserve, because I earn three times points on travel and dining.
- Ink Business Preferred Credit Card, because I earn three times points on the first $150,000 each anniversary year in business categories such as social-media advertising and shipping.
- Hilton Honors Aspire Card from American Express, mostly for the Hilton Diamond status and travel perks.
- Discover it® Miles, because Discover matches all the miles you earn the first year.
- Blue Cash Preferred® Card from American Express, because I earn 6% cash back on up to $6,000 at US supermarkets each year, then 1%.
- Gold Delta SkyMiles® Credit Card from American Express, because I prefer flying Delta when I can.
- The Blue Business℠ Plus Credit Card from American Express, because I earn two times American Express Membership Rewards points, up to $50,000 per year, then one times with no annual fee.
- Chase Freedom, because I always max out the quarterly five times bonus categories (up to $1,500; activation is required).
- Citi AAdvantage Platinum World Elite Mastercard, because I’ve been beefing up my stash of AA miles.
- CitiBusiness AAdvantage Platinum Select World Mastercard, so I can earn American AAdvantage miles on my business purchases.
- AAdvantage Aviator Red World Elite Mastercard, because I earned the sign-up bonus with a single purchase.
- Citi Premier Card, because I love the flexibility of Citi ThankYou Rewards.