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Credit scores are one of the very first topics people bring up when they start looking into credit card points and travel rewards. They want to know what the impact--both positive and negative--on their score will be when they open or close a credit card. You may have similar questions, so we've put together this guide to help you get started. 

Being financially responsible is essential to succeed in the world of travel rewards, and that begins with knowing what credit scores are and how they work. 

What is a credit score? 

Why is it important?

Does everyone have a credit score?

How are credit scores calculated?

What is a good score?

Will opening a credit card affect my credit score?

What does my credit score need to be to be approved for a credit card?

How can I maintain a good credit score?

Will closing a credit card hurt my score?

How do I check my credit score?

Does checking my score hurt my credit?

What is a credit score?

A three-digit number generated with the information in a person’s credit report—a comprehensive report summarizing an individual’s credit history—to determine their creditworthiness. Credit scores reflect the likelihood of a person’s ability to pay a loan or credit obligation based on their credit history. Credit scores typically range between 300 and 850.

In short, credit scores help lenders determine how risky it would be to lend a person money.

Credit Score

Why is it important?

Because it can be a major factor in a person’s ability to get credit.

Lenders rely on credit scores to help them determine the creditworthiness of a person and decide if they should extend them a loan. Additionally, credit scores may influence the terms of the loan (ie. the interest rate a person gets) and the products the person would be eligible for.

A strong credit score may help a person get approved for a premium credit card, secure favorable financing for a home or education, and even influence whether a security deposit is warranted for a rental agreement. Conversely, a poor—or non-existent—score could make any of these situations either difficult or lead to high borrowing rates.

Does everyone have a credit score?

No, for a credit score to be generated there must be enough credit information.

People with no, and even limited, credit history may not have a credit score.

How are credit scores calculated?

There are five categories that contribute to how a credit score is calculated, with some of the categories being weighed more heavily than others.

How Are Credit Scores Calculated

Payment History (35%)

The most important thing lenders look at is if you make payments on time, how often (and by how much time) do you miss payments, and whether or not you’ve missed payments recently.

Consistently making on-time payments will boost your score, while any missed payments will negatively affect it.

Amounts Owed (30%)

The amount you owe on loans, credit cards, and other debt also has a big impact on your score. This category factors in the amounts owed, the number and types of accounts you have open, and the percentage of your available credit you’re using (known as your credit utilization ratio, which helps lenders know that you’re not spread too thin.).

Having high credit card balances and maxed out accounts will hurt your score, while low balances that only use a smaller rate of your available credit can raise it.

Length of Credit History (15%)

Determining a credit score requires sufficient data, and having long running accounts can provide that. For this category, the age of the oldest and newest accounts, the average age of all accounts, and how long it’s been since you used your accounts, all contribute to your score.

A history of on-time payments and low utilization rates is the proven track record that can help you maintain a strong score. However, while a long credit history will typically help your score, people with shorter histories can still have high credit scores as long as the other categories are in order.

New Credit (10%)

Your recent credit activity accounts for 10% of your credit score. Applying for too much credit too frequently can hurt your score as it suggests the possibility that you’re in financial trouble. Additionally, every new account you open lowers the average age of your accounts, which impacts your credit history.

Although you should try to spread out how often you apply for credit, it’s a common misconception that any application for credit will gravely impact your credit score. This is usually not true—applying for credit will have only a small impact on your score, if any impact at all.

Don’t be scared to apply for credit, but avoid doing so too often. A popular best practice among point chasers is to apply for new credit cards every 3-4 months.

Credit Mix (10%)

Although this is a smaller category, lenders do value applicants with experience managing different kinds of debt and credit—as opposed to those who only have had one type of credit

Consequently, having a mix of accounts (like credit cards, home loans, and installment loans) may improve your score.

What is a good score?

While different lenders usually have their own definitions of what they consider a good score, most consider a score over 700 (on a 300-850 scale) to be good.

Having a score over 700 isn’t a guarantee of credit approval, but it’s a good a minimum to aim for and can help guide your decision of which credit opportunities to apply for.

This chart shows a fairly standard summary of how lenders evaluate credit score.

Credit Score Range

Will opening a credit card affect my credit score?

Initially yes, when you apply for a new card there is a hard credit report inquiry that lowers your score—although the impact of opening a single new credit account is usually small.

Longer term, your credit score benefits from the new account; once your card is active, your total credit limit will go up, and your utilization ratio will likely drop, which helps raise your score.

Despite the relatively low effect of opening a single new card, you should avoid opening too many credit cards in a short period of time as it can have a more significant negative impact on your score. As mentioned earlier, waiting 3-4 months between applications is a good best practice.

What does my credit score need to be to be approved for a credit card?

First and foremost, it’s important to stress that your credit score—while being a key part of your application—is not the only factor that plays into whether or not you get approved for a credit card. There are half a dozen other factors that can impact the decision; so just having a high credit score is no guarantee of approval. With that said, if you have a score in the 700s and have everything else in order, then your odds of approval are high.

Most credit cards offering lucrative travel rewards tend to have average approval scores over 675, with some cards going as high as the mid 700s. These are just averages, however, and it’s possible to get approved with a lower score. As a safe floor, a score below 600 is unlikely to get you approved for most great travel cards.

Keep a look out for pre-approvals and targeted offers, as these tend to have a higher likelihood of approval success—even if your score is a bit lower than ideal. 

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How can I maintain a good credit score?

Juggling all the factors that impact your credit score can seem daunting, but by following these tips you’ll help your score stays high:

  • Understand what goes into your credit score.

  • Pay your credit card bills on time.

  • Pay all your bills in full—avoid carrying a balance.

  • Don’t close credit cards unless it’s really necessary.

  • Space out how often you open new cards.

  • Monitor your credit score periodically.

Will closing a credit card hurt my score?

Yes, closing a credit card can impact both your utilization ratio (under the Amounts Owed category in your credit score composition) and the length of your credit history (its own category).

The degree of impact closing a card has on your score depends on your credit portfolio. If you have a high credit limit across your other accounts and typically only use a small percentage of it, then the impact on your utilization ratio will likely be small. Additionally, if you have multiple long-running cards and are planning to cancel one of your newer cards, then the impact on your length of credit history would probably also be less meaningful. Nevertheless, and especially for those with a less robust credit portfolio, it’s not advisable to close a card just for the sake of closing it—particularly if it’s a no annual fee card that you could keep at no cost.

Closing credit cards does not benefit your credit score in any way, so opt to keep them open unless you have a valid reason not to.  However, a couple instances where closing a card could make sense include:

1.  The card has an annual fee that outweighs the benefits you’re getting from the card.

If you don’t want to pay the fee, call the card issuer before canceling and ask for a retention bonus—they might make it worth your while to stay on board and possibly even waive your fee. You might also be able to downgrade the card to a no-annual fee card without having to close the account entirely.

2.  You want to get the sign-up bonus again, and need to cancel the card to be able to re-apply.

Make sure you know the rules for repeat rewards before taking this route. For example, American Express only lets you earn the bonus once in a lifetime per card, while Chase typically requires a minimum of two years between bonus grants.

How do I check my credit score?

There are a few different ways to check your score; here are three of the more common methods:

Through Credit Card Benefits

Many credit cards now offer free credit score reporting to their cardholders as benefit of being a client.

If your cards provide you with this perk, opt for this choice when checking your score.

Credit Score Services

There are various online services that offer free credit scores or free trials to check your score.  Some popular services include CreditKarmaLifelock, and FreeCreditReport.com.

Credit Score Services

Make sure you read the fine print before signing up for any service, as many free trials turn into a recurring membership if you don’t cancel before the trial’s end date. 

Directly From Credit Reporting Companies

You can buy your score by going directly through the credit reporting companies.

Given how many free alternatives there are—particularly through credit cards—paying for your score is probably not your best option.

Does checking my score hurt my credit?

No, checking your own score does not hurt your credit.