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Over the last few years, my husband and I have signed up fordozens ofnew credit card accounts. I’m sure that probably seems pretty extreme,but it’s really not when you consider the fact that our credit cards are spread across our two personal credit profiles and three separate businesses.
Maybe I’m just nuts, but I actually thinkdoing things this way makes our life easier, not harder. For example, having separate business credit cards helps us keep all of our business-related purchases separate for tax purposes.
Still, it’s a lot to keep track of which is why I keep a credit card rewards spreadsheet with all of the important details. Not only does my spreadsheet help me keep of track of when I opened new accounts and when I should cancel them, but it also helps me keep my credit score in good shape.
Although I don’t stress out over my credit score, I still don’t want to ruin my credit. After all, you never know when you’ll need to use credit to buy a new house, purchase an investment property, or buy a business! Anyway, I recently received this reader question via Twitter and thought it deserved an answer:
“Doesn’t havingseveral rewards cards ruin your credit?”
Tina J.
Will Pursuing Credit Card Rewards Ruin Your Credit?
A lot of skeptics will tell you that pursuing points and miles will ruin your credit score over time. I’m proof that it isn’t true. In fact, I currently have50 accounts according to TransUnion and, as you can see from the screenshot below, one of my scores recently climbed back over 800. The reason I have been able to keep a strong credit ratingwhile pursuing so many rewards is because I have a strategy when it comes to applying to new cards and I am 100% debt-free and a total freak about staying that way.
Todecide yourcredit score, credit reporting agencies use several criteria including your payment history, how much you owe, the length of your credit history, new credit, and the types of credit used. Here’s how it breaks down:
Payment History: 35 percent
Amounts Owed: 30 percent
Length of Credit History: 15 percent
New Credit: 10 percent
Credit Mix: 10 percent
Although opening new accounts will temporarily cause your score to drop a few points, doing everythingelse rightseems to be enough tokeep you in good standing. For example, you should always pay your credit card bill in-full, even if that means paying several times a month to stay on budget. {Newsflash: No matter what, going into debt to pursue rewards is always a bad idea}. Second, you should try to keep at least one old account open. Doing so can help improve the average length of your credit history. Third, you should always pay your bill on time. Never pay anything late!
My Credit Card Rewards Strategy
Developing a credit card rewards strategy takes time. Here’s how I pursue so many points and miles while keeping my credit score over 800:
I only open new accounts every 3 or 4 months. Every time I open a new credit card account, my score drops a few points. Waiting 3 to 4 months between applications gives it time to rebound.
I monitor my spending like a hawk. A lot of people feel that credit cards cause them to spend more, but I actually feel the opposite. Using credit makes it easy forme easy to monitor all of our purchases online.
I pay my credit card bills 3-4 times per month. Since we use a zero-sum budget, I pay our credit card bills about once per week so we can stay on track. And once our spending limits are gone, they’re gone! Always keeping our balances near zero also keeps our utilization as low as possible.
I monitor my credit on Credit Karma. Credit Karma helps you monitor everything that affects your credit score. Better yet, it’s free!
Should Everyone Have a Ton of Rewards Credit Cards?
Obviously, the number of rewards cards you have should depend on your own comfort level. I like to take the hobby to the extreme, but most people would be much better off getting one or two excellent rewards cards and using them for their everyday spending. It takes a lot of time and effort to stay organized when you have more than a few cards, and most sane people would probably rather spend their time doing other things!
Still, you shouldn’t let anyone tell you that signing up for a handful of rewards credit cards will ruin your credit. It simply isn’t true, and I get tired of hearing people say that it is. Just use your best judgment and some common sense before you open any new accounts. Only you know what makes sense for your specific situation.
Make sure to check out my NEW Free Travel Rewards Advice Page!
Did your credit score take a dip when you started pursuing points and miles? How did you decide how many cards you feel comfortable with?
Yes, rewards cards affect your credit score, since the major credit card issuers all report account information to credit bureaus each billing cycle. Your credit score is based on the information the bureaus collect in your credit report, so using your card responsibly is the best way to build credit.
Though rewards credit cards have their pros and cons, applying for a card with rewards will generally reap more benefits than a card without rewards — as long as you use it responsibly. But if you aren't maximizing your rewards, you're missing out on money toward travel bookings, retail purchases and more.
There are several common mistakes you can make with credit cards, which can cause financial problems. Making minimum payments only and using cards for everyday purchases are two common mistakes. Avoid using a credit card just for the rewards or points. Try to avoid paying your medical bills with your credit card.
Using a rewards card responsibly can be part of building credit and improving your credit score. And that's true of any credit card, whether it offers rewards or not.
Your credit score will normally go down by fewer than five points when you apply for a credit card. FICO reports that for most people, one credit inquiry takes off fewer than five points under its credit scoring system. The impact can vary based on your own unique credit history.
You should redeem credit card rewards as often as possible, whether they're points, miles, or cash back. It is important to redeem often because credit card rewards can be devalued or expire, depending on the type of rewards they are.
The best way to put this into practice is to redeem your cash back every month as a statement credit towards your credit card bill. Or, if your credit card has a minimum redemption amount, redeem every time you reach that minimum.
Credit card points typically have limited redemption options with varying values. In some cases, point redemption options are worth less than one cent per point. By comparison, cash-back rewards typically have a stable value regardless of how they are redeemed or spent.
Your payment history is the most influential factor in your FICO® Score, which means that missing even one payment by 30 days or more could wreak havoc on your credit.
It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.
1. Pay off your balance every month. Avoid paying interest on your credit card purchases by paying the full balance each billing cycle. Resist the temptation to spend more than you can pay for any given month, and you'll enjoy the benefits of using a credit card without interest charges.
Theresa Chalfant, Writer. Yes, rewards cards affect your credit score, since the major credit card issuers all report account information to credit bureaus each billing cycle.
Yes, credit card rewards are worth it if you pay your credit card bill in full every month. By doing that, you won't be charged credit card interest on your purchases. The great thing about rewards is they allow you to get value back on every eligible purchase, just because you're paying by credit card.
If you or your issuer closes your account, you may lose your earned cash back rewards, though some issuers might allow you to redeem your cash back within a certain amount of time after closing your account. You may also lose your rewards if you don't use your card for an extended period of time.
These cards can help or hurt your credit history, depending on how you use them. If you use your card every month and then pay off at least the minimum balance, or if possible, the total amount owed, a store card can be a valuable financial tool to build your credit history.
When you do that, your travel rewards can lose a lot of value. For example, if you redeem your Chase Ultimate Rewards points for a statement credit, the value will be 1 cent per point. It's more than many rewards programs offer for this type of redemption, but you can get much more with other redemption options.
Credit cards offer one of the best ways for you to build your credit and improve your credit scores by showing how you manage credit on a regular basis. If you want to build good credit, use credit cards regularly while making all your payments on time and using a small portion of your card's credit limit.
High utilization on a single credit card could especially hurt your credit scores if you have a short credit history and only one card. On the other hand, you may feel the effects less if you have a long and excellent credit history and spread your utilization across multiple cards.
Hobby: Web surfing, Skiing, role-playing games, Sketching, Polo, Sewing, Genealogy
Introduction: My name is Maia Crooks Jr, I am a homely, joyous, shiny, successful, hilarious, thoughtful, joyous person who loves writing and wants to share my knowledge and understanding with you.
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