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What about my Credit Score?
One of the most common questions when you are considering travel hacking is “What about my Credit Score?” or “How will this affect my Credit Score?” The answers out there are vague because the truth is each individual person has a different set of circumstances. There are so many factors that contribute to your credit score which can be really frustrating, but it can also be a good thing.
What contributes to my Credit Score?
There are two primary sources that provide Credit Scores, The FICO Score, and the Vantage Score. Each of these is adjusted slightly differently as to how they calculate. So, you actually have more than one credit score, surprise! The credit scores are calculated using:
- Payment History
- Total Debt, Balances
- Utilization
- Depth/Length of Credit History
- New/Recent History
- Types of Credit Used.
Payment History
Payment History is the spot where the creditor is looking at your past payments. Have you paid your debts on time? Have you paid your debts in full? How late have your late payments been? Have you missed a payment? How recently have you missed payments? This section would also include any information from collections, bankruptcies, foreclosures, etc.
Total Debt, Balances, and utilization
Here your creditor is looking at the credit you are using vs the credit you have available to you. If you have several accounts that are maxed out, then this would lower this section. This section is the one that typically sees travel hackers gain points on their credit score. You will hear lots of travel hackers say “my credit got higher, not lower!” That is because their amount of credit available to them is going up, and the amount they are spending is staying the same, therefore, their amount of used credit percentage is lower. Experts in the credit industry recommend keeping your credit utilization below 30percent to maintain an excellent credit score.
Depth/Length of Credit History
This is the place where a travel hacker could get themself in trouble. If you are churning and burning cards, keeping them for less than 12 months and dumping them, and not keeping any long term cards, this will bite you. You need to have some forms of credit that are long lasting so the banks can see that you are a good long term investment. A long-term mortgage or car loans can also count towards the longevity of your credit.
New/recent Credit
When people talk about hard/soft inquiries, this is the section they are referring to. A soft inquiry happens when you check your credit or are preapproved for a card. This only shows up to you and doesn’t hurt your credit. A hard inquiry is when a creditor checks your credit for an auto loan, student loan, mortgage, credit card, etc.
Many hard inquiries can negatively impact your credit score, and this is the spot where people panic with travel hacking. The good news is, when we look at our percentage charts in the infographic above, we can see that this only accounts for 5-10% of our total score. Also, if you are looking for a loan, the Credit Bureaus understand that. They will give a window (14-45 days) where your hard inquiries count as 1. According to FICO the impact of a hard inquiry on your credit score is approximately 5 points.
Types of Credit Used
This is where your creditor is looking for diversification among your credit. Can they see a range of types of credit that you have or have had that can contribute to the knowledge of your risk level as a borrower? Do you have student loans, and a mortgage and credit cards that you are paying responsibly?
So What Does this mean for Points and Miles?
This means that you should know what your credit score is. You should monitor your credit score and ensure smart spending and payoff practices. Don’t max out your cards, don’t let balances sit on your cards, and maintain some long term cards. You can always freeze your credit as a precaution. It takes a lot of discipline to monitor your travel hacking habits, but it also has a large reward if carefully monitored, and done within appropriate boundaries.
