As I’m sure you can see but now, signing up for new credit cards is one of the easiest and fastest ways to accumulate the miles and points that you need to take the trip you want. However, before you dive in, we need to take care of some housekeeping items.
If you are in a financial position right now where you cannot pay off your credit card balance then no amount of miles or points earnings will make it worthwhile to open a new credit card. If you’re carrying a balance on your credit card then you’re playing right into the bank’s hand and they’re making more money from you than you’ll save in travel.
For anyone who isn’t carrying a credit card balance, then you can earn some great travel rewards from applying for credit cards. Even if you’re a student you can get into this game, but you’re going to have to start out slow. My sister is a college student and recently obtained an American Airlines card with 50,000 mile sign-up bonus.
In the interest of not putting you to sleep we will quickly discuss credit scores and the impacts that credit card applications have on this – but if you’re interested in reading more please check out my more in-depth look at credit card applications and credit scores.
First, let’s quickly look at what information goes into the algorithm that determines your credit score:
FICO Score Chart
As you can see above, some factors are more important than others. We’re often lead to believe that applying for credit scores will hurt our credit, but the reality is that applying for credits cards increases your credit in the long-term.
There are two components above that are affected negatively by applying for a new credit card:
- New Credit (10%)
- Length of Credit History (15%)
Each new application will result in an inquiry being added to your credit report and when you get approved the new account will be added to your Average Age of Accounts calculation, so your average age of all credit will decrease.
All of the other factors in your credit score are improved by applying for credit. Below is a screenshot from my CreditKarma account showing the factors impacting my credit score. As you can see from the count of inquiries I’ve applied for a ton of credit cards. From this, my age of credit history and number of inquiries have both been negatively impacted. But everything else impacting my credit score has increased over the same period, and they’re the factors that matter even more.
Here’s CreditKarma.com’s analysis of my scoring factors
Before you apply for any credit cards you should sign-up for a free credit monitoring service. CreditKarma is my favorite, but CreditSesame is also good. These free scores are often based on a slightly different algorithm than the one the credit card companies will use for your application, but they will give you a good ballpark. You want to have at least a 650+ credit score before applying for the credits cards I’ll be discussing. Ideally you want to be above 700 because above that you’re much more likely to get approved. And anything in the mid-700s is solid enough for everything you need.
Try not to get bogged down too much in the credit scoring details. My intention was to explain how applying for new credit cards doesn’t hurt your credit score in the same way that you may have been taught. In the past year I’ve obtained over 20 new credit cards and my credit score is higher now than it was a year ago.
