The 10 Credit Score Commandments

Your credit score can be an enabler, or a blocker, to getting the things you want in life. That new house? Car? Loan? All will require you to have healthy credit. Unfortunately, the credit score algorithm isn’t understood by the average person. Over the last few years I’ve researched credit scores a lot, and here are the 10 things you should/shouldn’t do when it comes to credit cards.

Disclaimer: I am not a certified personal finance professional, and this is not investment advice. Please do your research!

Never cancel old cards

Credit age is a huge factor in your credit score. The older your credit, the more established it is. If you cancel your oldest card, it could plummet the average age of your credit. Even if you don’t use your oldest card, pay off the balance, and put it away in a drawer somewhere.

Get your score for free — don’t pay

There are several ways to get your credit for free. Here are two of my favorites:

• https://www.freecreditreport.com/: Allows you to get your full credit report for free, once per year.
• Credit Karma: Credit karma lets you check your score anytime for free. It updates about every 7–10 days. It also has some great features that allow you to understand and improve your score.

Remove derogatory marks if possible

Late payments for cards requiring on-time payments can ding your credit by adding derogatory marks. Lucky for you, you can appeal these. An easy way to do this is by checking your derogatory marks on Credit Karma, and then appealing directly from there. You can also go to the credit bureau websites to appeal. The major bureaus are: Experian, TransUnion, and Equifax.

If the missed payment was rare, or you are a good customer, the card/company will consider removing marks. Definitely check this as you may have marks you don’t even know about! A few years ago I had 2 that were accidental, and both got repealed in just a couple weeks. It shot my score up.

Always ask for a credit limit increase

Even if you don’t need a higher credit limit, it’s actually smart to constantly request a higher one. Why?

The credit algorithm looks at what percent of your limit that you use. For example, if you have a $1,000 balance on your $5,000 limit, thats a 20% utilization. Any utilization over 15% is considered high by the bureaus!

If you ask your credit provider to up your limit to $10,000, your utilization theoretically goes down to 10%. This is likely to positively impact your credit score.

Don’t open a new card if you don’t want to lower your credit score

It is often very tempting to open a new card. A store has a promotion, you want 0% interest on a new purchase, or you want a sign up bonus. Be careful!

Opening a new card can greatly impact your credit score. It will bring the average age of your credit down. Bringing credit age down is likely to decrease your credit score.

Also note that you often need a “hard inquiry” on your credit for opening new cards, which also can impact your score.

Before signing up for that new card, think if you are willing to take a ding on your credit right now. If you are trying to raise your score, don’t do it. If you are content with your score, and can take a small hit, go for it. But that leads us to the next point…

Don’t sign up for cards with poor rewards (e.g. retail, food, etc)

A lot of credit cards have great rewards and amazing sign up bonuses. However, there are also a lot of credit cards that don’t. Don’t waste your time with these. Here are an example of “bad cards” in my opinion.

• Credit cards offered by retail stores. It can be tempting if it‘s your favorite store, or if they are pressing you to sign up when you make a big purchase. Don’t give in.
• Credit cards offered by banks that don’t have good perks vs. the major credit card providers.
• Credit cards that are promoted to you when you are making a big purchase, that have a promotional 0% interest rate. While paying later or monthly is attractive, don’t fool yourself. You are still taking on debt and opening up another card, which is bad for your score.

You should do research on credit cards with the best rewards and sign up bonuses. Here are a few resources:

• Best Rewards Credit Cards of 2019 — Nerd Wallet https://www.nerdwallet.com/best/credit-cards/rewards
• Best Travel Rewards Cards of 2019— The Points Guy https://thepointsguy.com/guide/top-travel-rewards-credit-cards/

Don’t ignore monthly interest charges and fees

This is huge. So many people carry a balance on their card and have no idea that they are paying 10–25% in interest monthly! This can add up quick and can be very hurtful to your finances. Check your monthly statement and look for the words “interest” or “APR”. Be aware of the interest you are paying, and if you are in a hole, consider a transferring your balance to a card with 0% interest promotion, or a loan.

Take advantage of balance transfer cards

Sometimes, you may carry a balance on your credit card. Maybe that big vacation was worth splurging on, and you plan to pay that balance down over time. Be careful, carrying a balance subjects you to the high interest rates credit cards have! Don’t carry a balance for long, or else your paying steep interest fees.

If you need to pay down a significant balance to avoid paying interest, consider a balance transfer credit card. Companies will give you 12–1 months of 0% interest for switching to their product. They typically charge a 3% or 5% transfer fee, but that is often much better than what you would be paying in interest fees.

Obviously you shouldn’t do this often, as opening a new card can lower your score, as previously mentioned. However if your balance is too high to manage, this is a good short term solution to get 0% interest while you pay your balance off.

Here are some resources to find the balance transfer card that fits you.

• Best Balance Transfer and 0% APR Credit Cards of 2019 — NerdWallet
  https://www.nerdwallet.com/best/credit-cards/balance-transfer
• Best Balance Transfer Credit Cards of 2019 https://www.bankrate.com/credit-cards/balance-transfer/

Only apply for loans if you absolutely need them

Applying for loans often requires a “hard inquiry” on your credit. A hard inquiry is actually counted as negative on your credit score in most cases.

So if you’re shopping around for loans, don’t actually apply for one until you are serious about taking it! You are just taking an unnecessary credit hit to see if you can get approved or not. Wait until you truly need the loan and are ready for it, not for the shopping phase.

Note that some loan providers will give you a quote without a hard inquiry. Make sure you are reading the disclaimers provided.

Know which of your cards have the best points bonus for each purchase category

While this doesn’t impact your credit score, you should be aware of the reward structure of your current and future cards. This helps you maximize your rewards, and allows you to understand what cards bring the most value to you and your unique spending habits.

It’s likely you have at least more than one credit card. In that case, you should know which one to use in each spending scenario, based on points earning bonuses. Look up the point multiplier for each of your cards for these areas, and then adjust your usage habits accordingly. I once found out by calling American Express that I was only getting 1x points back on restaurants by using my primary card, which consisted of a high percent of my purchases. If I had just used my other card, I could’ve easily got 2x points!

Below are the major reward categories. Make sure you know the card in your set that is best for each one.

• Travel (airfare, hotels, rental cars, etc.)
• Restaurants
• Groceries
• Gas
• Everyday purchases
• Other (e.g. Amazon purchases)

Hopefully this advice helps you improve your credit! If you have any questions, ask in the comments below.