Credit Scores

Video Time: 03:39

In this video I’m going to explain how credit scores really work and how travel hacking can help improve your score.

I’ll also explain below…

The number one question that comes up with travel hacking is credit cards and the impact on credit scores. A lot of people are worried when it comes to applying for multiple credit cards and also when it comes to cancelling them.

There is no point in dragging this out. It’s really quite simple.

There are only two reasons NOT to apply for multiple credit cards:

1. You are buying a house in the near future. When banks are looking at you in terms of financing you with a mortgage, all they do is a quick scan of your credit history and your score. If they see too many cards, they just think that you have too much opportunity to get yourself into debt. Don’t give them reason to think that. Get the mortgage first and then start getting multiple credit cards.
2. You are bad with these sorts of things. Let’s face it, credit cards are only dangerous to people who make them dangerous. If you are one of those people who spend out of control and/or don’t pay off your balance in full each and every month, stay away from credit cards. Be honest with yourself. Debt is not pretty when you’re paying 22-30% interest.

If you don’t fall into those two categories mentioned above, it’s time to start travel hacking with credit cards.

Multiple credit cards CAN actually improve you’re credit score over time, as long as you pay them off in full each month or don’t use them at all. 

This is basically how it works:

1. If you only have one card with a spending limit of $2000 and you spend, on average, $1000 per month on that card, credit lenders look at it as if you’re spending 50% of your maximum credit limit. This is a little high in their minds and looks bad on your credit even if you pay it off each month. However, if you have five credit cards with $2000 spending limit on each of them (and you still only spend $1000 per month via credit cards), you are now only spending 10% of your maximum credit limit and this looks great! Credit score improves!
2. The more credit you have that you don’t use will make your credit score better. Lenders look at you as being responsible. If you have a maximum credit limit of $50,000 (spread out over credit cards, lines of credit and so forth) but only spend $2000-5000 per month, you are golden!
3. The only reason to cancel a card is to avoid a yearly fee or to re-apply and get more bonus points. Otherwise, you’re better off keeping the card and not using it, as the added credit will help your credit score.
4. Important. Always keep your oldest credit card. For example, my first credit card was a no-fee MasterCard. Not too long after, I got a Visa from my bank as well. Both have no fees but also have mediocre rewards. I have now had them 14 years! I don’t use them but I don’t cancel them. When lenders look at your credit history, it is very helpful to have a credit card or two that have been with you for a LONG time. Even if you don’t use them, you still have access to them and it shows you are responsible in the long term.

Last but not least, the best time to apply for credit is when you don’t need it. Also, if you are ever offered a Line of Credit, take it. You don’t pay interest if you don’t use it but if you ever need it for an emergency, you will have it! If you never use it, the added credit will help your score!

When I fest started travel hacking a few years ago, my credit score was pretty good. It was around 700. A year later, after multiple credit cards, it was now 740. Today it is over 800 and I am in the highest credit score bracket in Canada. This is living proof that “travel hacking” alone will NOT hurt your credit. The fastest way to hurt your credit is to spend a high % of your allowable credit and/or to not pay it off.