How Large Purchases Hurt My Credit Score — Reader Mistake Story

Update: Some offers mentioned below are no longer available. View the current offers here.

One of the things I love most about being The Points Guy is getting to hear stories from readers about all the positive ways award travel has affected their lives. That being said, while I love hearing about your successes, I think there's also a lot we can learn by sharing our mistakes, and I'm calling on readers to send in your most egregious and woeful travel failures.

From time to time I’ll pick one that catches my eye and post it for everybody to enjoy (and commiserate with). If you’re interested, email your story to info@thepointsguy.com, and put “Reader Mistake Story” in the subject line. Include details of exactly how things went wrong, and (where applicable) how you made them right. Please offer any wisdom you gained from the experience, and explain what precautions the rest of us can take to avoid the same pitfalls. If we publish your story, I’ll send you a gift to help jump-start your next adventure (or make up for any blunders from the last one).

Today, I want to share a story from TPG reader David, who temporarily hurt his credit score by making several large purchases. Here’s what he had to say:

Last November, I signed up for the Ritz Carlton Rewards Credit Card. Apart from the sign-up bonus (which was three free nights at the time), what attracted me to the card was the ability to obtain elite status in many programs all at once. By spending $75,000 in a 12-month period, I could earn Ritz-Carlton Platinum, Marriott Platinum, United Silver, SPG Platinum, plus Delta benefits with the Crossover Rewards program.

That's a lot of money for me, but this was the perfect year to try, since I had large upcoming tax and college tuition payments, both of which could be paid with a credit card. So, in one month I charged a full semester of tuition to the Ritz-Carlton card, as well as a large tax payment to a different card. I stayed below my credit limit on each card, and figured I'd be fine as long as I paid off the credit cards immediately after receiving each bill (which I did).

Unfortunately, I didn't consider what effect this would have on my credit score. At the end of that month, it was down 100 points! It was noted that I had exceeded 30% of available credit on two credit cards, and was at 62% on one of them. My total credit utilization across all cards was quite high, and there was nothing I could do, since the amounts had already been reported.

It took several months before my credit score came back up to its normal range. Now, when any one credit card exceeds 30% of utilization, I make an interim payment mid-cycle to bring it down a bit. That seems to have solved the problem.

Your credit utilization measures the balances on your accounts against your total credit lines, and is one of the most important factors that determine your credit score. A high utilization is a red flag to potential lenders, so I recommend keeping the ratio of debt to credit low on each account individually as well as on all your accounts cumulatively. There's no magic number — go for the lowest (non-zero) utilization you can achieve, but try extra hard to keep your ratio under 30%.

If you're going to exceed that mark and you want to protect your credit score, you can make payments to your account ahead of time as David now does. However, you shouldn't pre-pay all your accounts, since paying early may adversely affect your payment history. Instead, just pre-pay the largest balances and then manage the rest on schedule. Don't worry too much if a high utilization drops your credit score. The effect is temporary, and your credit should rise again once you pay your bills.

Among credit cards that offer shortcuts to top-tier hotel status, the Ritz-Carlton Rewards card has one of the highest spending requirements. As David points out, however, that bonus gets you elite benefits with multiple hotel and airline programs, so it's a strong option to maximize large purchases. Just keep in mind that the bonus categories on this card are subpar; depending on how much you value elite status, another card that earns more points could be more rewarding.

I appreciate this story, and I hope it can help other readers avoid making the same mistake. To thank David for sharing his experience (and for allowing me to post it online), I’m sending him a $200 Visa gift card to enjoy on his travels.

I’d like to do the same for you! If you’ve ever arrived at the airport without ID, booked a hotel room in the wrong city, missed out on a credit card sign-up bonus or made another memorable travel or rewards mistake, I want to hear about it. Please indulge me and the whole TPG team by sending us your own stories (see instructions above). I look forward to hearing from you, and until then, I wish you a safe and mistake-free journey!