Credit Score Basics

If you’re going to play the credit card sign-up bonus game, you should understand how your credit score is calculated.  The actual calculation is proprietary, but there are general guidelines.  The credit score most institutions used is the FICO score which was developed by the Fair Isaacs Corporation.

Main Factors

  • Payment History (35%) – Are you paying your bills?  Are you paying them on time?  Financial institutions want to know if you’re going to pay them back.  They will look at your payment history to determine the likelihood of you paying them back (recent history being the most important).  Late payments will cause your score to go down.  Debts that went into collections are worse and bankruptcy is the worst.
  • Amount Owed (30%) – How much debt are you carrying and how close to your limits are you?  Your score won’t necessarily be lower if you have a lot of debt.  They are looking at ratios here.  How much of your available credit are you using?  If you’re carrying close to your limit, you are considered riskier and your score will be affected.
  • Length of Credit History (15%) – A long length of credit history gives financial institutions more information about how likely you are to pay.  This is why on a lot of blogs they will tell you to keep open some cards to let them age.  If you have a non-fee card that you’ve had for a long time, it is a good idea to keep that account open so your length of credit history remains high.
  • New Credit (10%) – This is definitely one aspect of the score that will be affected in some way by the credit card game.  Financial institutions are looking at how much new credit you’ve been applying for.  You’ll hear people use the term “hard pull” – that’s the term used for when a financial institution pulls your credit score.  (It’s different than if you were looking at your credit report.  If you’re looking at your credit report, your score is not affected.)  This is the part of the score that looks at hard pulls.
  • Types of Credit Used (10%) – Financial institutions want to see that you can juggle different kinds of credit – revolving, installment, etc.

Part of the reason I don’t think my credit score has been affected so much by the credit card game is that I didn’t have a lot of credit cards (really only 2) before I started.  So I would charge nearly all of my purchases on one card and I didn’t have a lot of available credit.  As a result, my percentage of available credit being used was higher than it is now.  I now have more available credit, so the percentage I am using is low.  Also I have never missed a payment, so I’ve never had anything go to a collections agency.  And I have never declared bankruptcy.

You’ll need to assess your situation to see if this is a good option for you to get inexpensive travel.

If you do want to use credit card sign-up bonuses as a means to travel, there are a few great options out there right now:

  • British Airways (Chase) – 100k sign-up bonus – 50k after first purchase, 50k after $2,500 spend within 3 months
  • American Airlines (Citicard) – Visa link, Amex link, Business Visa link 75k sign-up bonus after $1,500 spend within 6 months, no annual fee the first year.  Technically this offer has expired.  However, the link for the offer still works and people have reported success on Flyertalk.
  • Continental (Chase) – 50k sign-up bonus after first purchase, no annual fee the first year.  This card is great because it will be going away with the merger with United, so you have a limited time to get the card.
  • Hyatt (Chase) – 2 free nights at any Hyatt after first purchase, $75 annual fee (not waived the first year).

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