What Travel Hackers Know About Credit Scores That You Don’t

One of the things that I wondered about when I first got into Travel Hacking was how it would impact my credit score. I had worked really hard to build and maintain an excellent credit score over the years, and I didn't want to gain free travel at the expense of my credit score dropping. You might be concerned about the same thing - So here's the short answer: Travel Hacking will improve your credit score! Below, I'll give you a detailed explanation so that you know all the details that go into that reality.

THE BASICS OF CREDIT SCORE

Here's a quick reminder of what a credit score is and why it matters... Your credit score is a three digit number that financial institutions use to rate your trustworthiness with credit. Credit scores are typically categorically divided into four different score ranges:

•  300-629 - Bad
•  630-689 - Fair
•  690-719 - Good
•  720-850 - Excellent

CREDIT SCORE FACTORS

As illustrated above, there are five main things that impact your credit.

1. Payment History (35%) - How many on-time, late, or missed payments do you have on your record?
2. Credit Usage (30%) - What percentage of your available credit is used? Lenders do not like to see you at or approaching your maximum credit limit. 
3. Length of History (15%) - How old are your accounts? Do you have longevity?
4. Account Mixture (10%) - Do you utilize different types of credit? (e.g. Mortgage, Student Loans, Credit Cards, Home Equity, etc)
5. Credit Inquiries (10%) - How many recent credit inquiries have you had from lenders assessing your credit history?

HOW TRAVEL HACKING SPECIFICALLY IMPACTS YOUR CREDIT SCORE

Don't believe the myth that Travel Hacking negatively impacts your credit score. Overall, Travel Hacking will improve your overall credit score after taking a slight initial dip. 

First positive factor, it increases your payment history exponentially. Each time you make your payment on time, you have more positive factors on your credit report. Remember that this accounts for 35% of your credit score. For instance, paying three different travel credit cards on-time and in full each month adds an additional 36 positive marks on your credit score each year.

Second positive factor, it increases your total credit for credit usage, which accounts for 30% of your credit score. Each card that you gain, adds to the overall amount of credit available to you. For instance, if you currently have one card with a $5,000 credit limit and you spend $4,000 on it each month, you're using 80% of your available credit. If you add three travel credit cards with $10,000 credit limits on each of them, your available credit is now $35,000, and that $4,000 in spending would only be 11% of your available credit.

Possible negatives factor, opening new credit cards can decrease your length of credit history, which is 15% of your credit score. Although, if you have some older accounts to balance it out, it will barely affect your credit score. Also, opening new credit cards does create a hard credit inquiry, which is 10% of your credit score.

So, 65% of your credit score factors will be positively impacted and cause it to grow significantly over time, and 25% of your credit score factors can be negatively impacted and cause your credit score to take a slight dip for a short time.

SHOWING MY CREDIT SCORE

As someone who has personally and professionally dove deeply into Travel Hacking with significantly more credit cards than the average travel hacker, I've continued to maintain my excellent credit score throughout my entire journey. Below is a screenshot from my credit score for you to see for yourself.

RECOMMENDED CREDIT SCORE

Overall, I recommend having a minimum credit score of 670 before signing up for your first travel credit card. It's not to say you'll definitely be denied if your credit score is lower than that, but you should be instantly approved if your credit score is above 670. Know that ever if you are denied for a low credit score, you can call the credit card company's reconsideration line and possibly get your denial overturned. If you find yourself with a low credit score, you can check out this helpful article for next steps in improving your credit: How to Rebuild Credit

One Caveat About Your Credit Score

While Travel Hacking improves your credit score over time, timing matters. If you’re planning to apply for a mortgage or refinance within the next 6–12 months, it’s best to pause any new credit card applications. Mortgage lenders scrutinize recent credit activity, and even a small dip in your score or too many inquiries could affect your approval or interest rate. Once your home loan is finalized, you can safely resume Travel Hacking without concern.

Check Your Credit Score Now

It's important for you to know what your credit score is and the factors that are positively or negatively affecting it. One of the best free, secure, and helpful resources out there is Credit Karma. Check it out today at creditkarma.com