Will Travel Hacking Ruin My Credit Score?

Hi, it’s Tim and it’s Amy from GoWithLess.
Welcome to our channel! We are thrilled that you’re here! Today’s subject is a
travel hacking subject, which means that it’s gonna be mostly Tim talking today
and that’s great. Every Wednesday we do a different video
and once a month it’s all about travel hacking. Our channel covers house-sitting, budget travel, early retirement and travel hacking and every week we work
one of those subjects in. So we’re happy to have you here please stay tuned for a
conversation about “will travel hacking mess up my credit?”. Today’s conversation is going to be focused on U.S. credit scores and U.S. credit cards and how
applying for credit cards is going to impact your U.S.-based credit score. And so,
I know from some recent conversations I’ve had, that it varies greatly around
the world. So, the guidance that we’re going to be giving here is going to be
very specific to a U.S. audience. Something to be aware of is that here in
the states there are a couple of different credit scoring models. The most
prominent one is FICO. The second one is VantageScore. And so, I’m going to be
focused on how your FICO score is made up. They roughly use the same metrics,
however I’m specifically talking about the FICO score today. Short answer to the
question “will credit card hacking ruin my credit score” is, maybe, it will. So, if
you don’t do it the right way, it certainly has the potential to ruin your
credit score. The longer answer is it probably won’t ruin your score. As a
matter of fact, the way we do it and, if you watch us here on our channel, the way
that we’re going to coach you to do it you have an opportunity to actually
improve your score. Your FICO score ranges from 300 to 850 points. There are
also five metrics that make up your score and each of these metrics is
weighted and so I’m going to also throw that up on the screen so you can see
that now. The first thing we’re going to talk
about is payment history. This is the most critical thing when it comes to
the make up of your credit score. It accounts for roughly 35 percent of your
score and it is far and away the most important thing to pay attention to. And
this is basically a metric that says…”Are you paying your bills ?”and “Are you paying them in a timely manner?”. That’s something you certainly want to do. If you pay
attention to our channel at all we’re gonna suggest that you pay your bills
off in full every month – you never leave any debt on a credit card. We wouldn’t
recommend travel hacking for anyone who doesn’t pay their credit card bills in
full every month, but, in addition, to paying them in full pay them on time.
Amounts owed account for 30% of your overall credit score. This metric is
about the utilization of the credit that you have extended to you. And what I mean by that…let’s say you have $10,000 worth of credit. If you’re using $2,000 of
that credit, you have 20% utilization. If you’re using 5,000 you have 50%
utilization. And so, the more credit that you have extended to you, the easier it
is to keep this metric on the lower side. So if you have 10 credit cards each with
$10,000, you have $100,000 credit line and you have two $2,000 of the
utilization in a given month? Well, you’re only at two percent utilization against
that entire line of credit. So, signing up for more credit cards actually makes
that line of credit bigger, and it makes it easier to keep this metric on the
lower side. Because the whole pie is bigger. That’s right. So if you
have $10,000 available to you on credit cards and you spend two thousand or you
have a hundred thousand dollars available to you and you spend the same
two thousand – that is an enormous difference in ratios and that affects
your credit score. That’s why having a lot of credit cards ultimately helps
your credit score. The length of your credit history accounts for roughly
fifteen percent of your FICO score. So one trick that we have here is you want
to keep cards around – no annual fee cards, specifically – for an extended amount of
time…i, e forever. Forever. So I know that a lot of people growing up it’s
like, “if you’re not using a card you want to cut it up”. That advice is not good
advice if you’re into improving your credit score because cards that have a
long history are going to improve this metric. And so, keeping cards open for a
long time improves this metric. No-annual-fee cards are a great way to keep
that metric growing. Now, sometimes you might pay an annual fee on a credit card
and it might not make sense to renew that. We get that. We look at every single
one of our credit cards at renewal time and decide do we want to keep this or do
we want to cancel this? Which makes sense? Now, we don’t just cancel it outright. So,
say we don’t want to pay the annual fee and we’ve made the decision to stop with
that card. We will call the credit card company and ask if we could be moved
into a no annual fee card or have that fee waived for the year, and it’s pretty
often that that in fact happens. So we try not to cancel a card, unless we do
not have another choice because we aren’t gonna be paying an annual fee
unless that makes sense. New credit accounts for 10% of your FICO
score. So, what that means is that when you sign up for a new credit card, or you
get any sort of new loan…a car loan, a home loan, etc., that’s gonna have an
impact on your score. The nice thing about signing up for credit cards is
this is typically two or three points out of there’s eight hundred and fifty
point range and it’s short-term. So, if you sign up for a new credit card my
experience has been is that impacts my score two to five points for roughly two
to three months and then my score goes back up. And so, when you apply for a new credit, this does have an impact on your score. So, this is one of the downsides, or
a negative impact, that signing up for cards has on your score but it goes away
really quickly. On a related note, if you’re gonna be applying for a mortgage
or a car loan or another sort of a loan maybe hold off on getting any new credit
cards right around that time and wait till you’re over that process until you
go applying. And, the reason for that is that the issuer of this mortgage…somebody’s gonna offer you hundreds of thousands of dollars worth of a loan…if
you have a whole bunch of credit cards that you just recently signed up for, that may be a red flag. “What’s going on here?” sort of thing.
But, it doesn’t necessarily…it’s gonna drop your score a little bit, but not
enough that that would matter. It’s just the fact that you might have signed up
for a lot of recent credit cards. It’s like “Why are you asking for all this
credit and you’re asking me for a few hundred thousand dollars?”.
Speaking of mortgages, the last metric is types of credit and it counts for, again,
about ten percent of your credit score. Thank goodness! Yeah, exactly. Why is that
thank goodness? Because we don’t have any mortgage, we don’t have any other loans.
The only things we have on our credit history are credit cards. We
one kind of credit and that doesn’t look good on a credit score. Fortunately,
it’s a little piece of the puzzle, but it’s the only place we get a ding. Yeah,
your credit cards are called revolving debt, meaning that it’s not a
fixed installment loan. So, revolving debt and installment loans are really the two
types of loans. An installment loan would be like a car loan or mortgage. And
so, we have neither of those. We don’t have…we don’t have a mixture of credit.
All we have is revolving debt – actually we have no debt – we pay off our credit cards
every month. The type of credit that’s been extended to us is revolving. And,
with all of these things and managing our credit cards? We’re both at about an
eight hundred and thirty points on our credit scores each out of 850 which is
excellent and the only reason it isn’t even higher is because we don’t have
more kinds of loans. We know this isn’t the most exciting topic, so we thank you
very much for sticking with us today and talking about credit scores. This is
something that we get asked so often we felt like it just made sense to add this
to our repertoire of our travel hacking videos upfront. Here’s the thing…it’s not
only that we’re asked often. We’re told by other people all the time that doing
this will wreck our credit scores. We’ve been doing it for years. We are here to
tell you in the flesh, it has not wrecked our credit scores. We have close to
perfect credit. That is because we are extended quite a few credit cards and we
don’t use them to the maximum amount, number one. Number two, we pay our bills on time. And number three, we try really hard never to cancel those accounts. So, those
three things have allowed us to have really great credit scores and we do
sign up for a lot of credit cards and we get the rewards of a lot of free travel
and hotels and airfare and things like that. So, there’s our topic for the week –
travel hacking. Next week, it’s vacationing! So we went on a vacation and we are doing a vacation video. If you liked the video today, please give it a
thumbs up. To subscribe, please click where Tim is pointing. We are trying to
hit a thousand subscribers by the end of the year and we are getting close but we
still have a ways to go and we need help and we appreciate your help! If you have
any comments to leave down below, we love engaging with our viewers. So, pop down
comments, suggestions, advice, whatever. We love to interact. Please do that below.
And, if you can share this with anybody. Has anyone told you that travel hacking
is gonna ruin your credit? If you do travel hacking, of course they have
because everyone tells us this all the time. Share this
video with them! We are here to tell you it ain’t so! Thanks for watching and we’ll
see you on Wednesday. Bye!

4 thoughts on “Will Travel Hacking Ruin My Credit Score?

  • It's a Travel Hacking video today! Thanks for watching. If you have any questions or comments, please post below. On a side note…Tim made me speak up!

  • Great job!!! The mortgage section is very important info, and a lot of people need to watch out for anything that affects their available credit within months of applying.
    My best ever credit rating (833) came when I had several credit cards with 0% APR balance transfer loans attached to them. The interesting part was that while it did affect my overall Credit Utilization % rating, the regular payments counted as a different type of credit loan (a plus in that 10% category), so it was basically a wash. I did have enough available credit that the Utilization hit was minimal percentage-wise, and I always had another empty card ready to roll the balance into when it came time to pay off — keeping the "different type of loan" rating boost without adding any more to the credit utilization rating. The only think to be careful of is never to use the card with the balance transfer for any types of purchases — they apply payments to the loan before the new purchases, so you get hit with high APR unless you can pay everything off at once!
    But, with that in mind, this technique is a way to get ready cash-on-hand for a very minimal 2-3% up-front charge (which can be rolled into the loan itself!) and barely a drop in your credit score.

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