Travel Cards: Friend or Foe of Your Credit Score?

Credit Cards

I have 2 different travel credit cards in my wallet and people always ask me why I don’t have more of them. The simple answer is that for me it’s all about quality, not quantity! Now, if you’re that person who just loves your google spreadsheets with all the travel miles you’ve racked up and how they convert to points, then please carry on. Do you! But, this post isn’t for you. This is meant for all my people out there wondering about travel credit cards and still unsure of whether they help or hurt your credit score. 

The short and annoying answer is that it depends. The way that you use your card and when you choose to pay your bill each month will ultimately determine whether the card will boost your score or cost you a few points. Here are some examples of how it can hurt your credit score:

Carrying Over a High Balance Just to Qualify for Promotions

You spend thousands of dollars within 90 days or some other short window of time, but then you carry that high balance over to the next month or worse carry it from month to month. This is very common with new cardmembers because they just want to rack up all the rewards points needed to qualify for the new cardmember promotion. But beware of this because the second most important category for your credit score is “utilization” or the ratio of your debt to your total credit limit. In order for your credit to be considered “excellent”, your balance or what you owe must be 10% or less of your total credit limit on each monthly statement. If your credit card has $5,000 available and you spend $1,000 then that is 20% utilization, which is too high. You would need to divide $5,000 by 10 and stay at or under $500 to maintain excellent credit utilization. So basically, if you ever carry a balance larger than one-tenth of what is available to you, then your credit score will take a big hit. This impacts 30% of the points in your credit score, so it’s really important that you master it before looking at any other factors!

Limit the Number of Credit Cards You Apply for Each Year

You open lots of travel cards in a short window of time. Do not get into the habit of doing this with any credit cards, regardless of whether they offer travel perks or not. Every time you apply for a credit card, you initiate a hard inquiry or hard credit check of your score and that results in you losing a few points. If you only apply to one new card every few months then your score will be fine. The problem comes from doing this over and over again too soon. 

To make things easy, some experts recommend not to open more than 2-3 credit cards per year. That means every 4-6 months you can apply again, but no sooner. The impact your credit score is somewhere between 5-7 points, but over time the hard inquiries begin to look bad. It’s as if you went begging all your friends to lend you money and each request was only a few days apart. You might look desperate and messy, so just don’t do it. If you’ve already made this mistake in the past, then keep in mind that hard inquiries are wiped off of your credit report after 2 years, so it won’t stain forever!

Closing Credit Cards Affects Your Credit Score 

You close a really old travel credit card because you found one with better travel perks or because the annual fee was too high. This is definitely something that could hurt your credit score dramatically for several reasons. When you close old credit cards in general, it hurts your credit score because it lowers the amount of available credit you have. That directly affects your utilization ratio in a negative way because now you owe the same balance but your total credit available is much smaller. It also removes the number of years you had the card for off of your overall average age of credit. 

Keep your oldest credit cards open and if you no longer want to pay annual fees, then you can ask to downgrade it or do a product change to another card offered by the same company that doesn’t charge an annual fee. This is ideal because you get to keep your age of credit from that card and all of the available credit on the card as well. 

There are so many travel cards available now, so you have to make sure to do your research. You do not want to end up with a credit card that you didn’t realize was only free the first year or only offers miles and rewards on one specific airline. As with any financial product or contract, you want to make sure that you fully understand the terms and conditions of the card before you apply. Most people who end up with bad credit as a result of using travel rewards cards simply did not use the card wisely! 

The bottom line is that using a travel rewards card is exactly the same as using any other type of card. You want to always get in the habit of paying your balance in full and never paying any interest fees. If you pay interest fees on the card, then think of that as canceling out any perks the card would give you anyway. It wouldn’t be worth it. But, if you always pay your bills in full and on time, then you really can benefit from a free flight at least once a year – even if it’s only one way! The point is that you will most likely only be responsible for paying taxes and fees on the flight, and if you use a credit card wisely then it could actually help you increase your credit score over time! 

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