Why good credit is key to building your point wealth
Editor’s note: This post has been updated with the latest information on credit reporting and scoring. It was originally published on January 20, 2011.
Every week, we share information about the amazing credit cards deals we find here at The Points Guy. However, these offers won’t help you if you can’t qualify due to your credit scores. Good credit is critical for people who want to take advantage of lucrative credit card offers and build point wealth, opening up valuable rewards like free flights and hotel award stays.
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Yet the perks of good credit don’t stop there. Working hard to earn and keep good credit can open doors and save you money in countless ways. Below I’ll share seven tips that I’ve personally used to maintain a great credit rating over the years.
1. Know your credit before you apply.
Before you apply for a ton of new of credit cards, you should understand your current credit situation. Knowing where you stand can save you from the frustration of getting turned down for card offers your credit isn’t a good match for right now.
You can get a free credit report from each of the major credit reporting agencies (Equifax, Experian and Transunion) once every twelve months. Go to annualcreditreport.com to learn more and claim your reports. Just be aware that the credit reporting agencies may each try to sell you additional services, like credit monitoring and their own credit scores. However, you probably don’t need these products.
It's also worth noting that the credit scores the credit bureaus sell may not be the same scores used by credit card companies when they decide whether to approve or deny your application. Most major lenders in the United States use FICO Scores for their credit decisions.
If you like, you can purchase your FICO Scores online from myFICO.com. You may also be able to access free credit scores (though not always the FICO brand) via your credit card account or other non-bank sources.
2. Examine your credit report for any errors or items that don’t belong.
No company is perfect, not even the credit bureaus. As a result, it should come as no surprise that errors and mistakes can end up on your credit reports. A study by the Federal Trade Commission found that 1 in 4 consumers identified errors on their credit reports that might impact their credit scores.
Once you download your free annual credit reports, examine them closely for errors, fraud, and outdated information. If you discover mistakes, you will need to take action.
3. Dispute negative items.
There are multiple ways to dispute credit reporting errors with each credit bureau. Three of the most popular options are as follows:
- Online
- Mail (preferably certified)
- Phone
Personally, I had some bogus items on my credit report that I disputed online. They were taken off within 45 days. I found the process to be simple and easy to navigate. Yet it is worth mentioning that many people, including the Federal Trade Commission, recommend sending disputes via certified mail with a return receipt requested.
Whichever way you decide to submit your credit disputes, what’s most important is not to ignore credit errors. Even mistakes that seem small might hurt your credit score. This website is a great resource for learning how to mount your dispute.
4. Get a real picture of your financial situation.
There are many online tools you can use to help manage your money. One of my favorites is Mint. Mint helps me visualize my financial picture and has alerted me to phony finance charges and bank fees in the past. Thanks to these alerts, I’ve successfully gotten bogus charges taken off my accounts.
Even if it’s uncomfortable, it’s good to visualize your current debt and see where you spend your money each month. As much as you might be tempted to stick your head in the sand, understanding your financial situation is key in life. This is true whether you want to open valuable rewards credit cards to build your point wealth or not.
5. Pay down your credit card balances.
When you apply for a new credit card, it may help your approval chances if you have low balance-to-limit ratios on your existing accounts. This relationship between your credit card limits and outstanding balances is also known as your credit utilization ratio.
Credit utilization is a major credit score factor. It’s largely responsible for 30% of your FICO Score. High credit card balances might lead to credit score damage, and the finance fees and interest payments will potentially cost you many times more than the value of the points you’re earning.
It’s important to get into the habit of paying off your credit cards each month. Paying your balance in full is the first commandment in good rewards card management.
6. Learn other ways to improve your credit score.
As mentioned, there are a lot of reasons why it’s important to earn good credit. Improving your credit may unlock the door to valuable limited-time credit card offers you’d miss out on otherwise.
FICO Scores range from 300–850. A score of 704 is average and 850 is perfect. Thankfully, you don’t need a perfect score to qualify for the best credit card deals. But excellent credit (typically 760 or higher) can work in your favor.
If your score isn’t as high as you want it to be right now, you may want to rehab it before trying to open up cards. Check out this guide for three ways to improve your credit score in as little as 30 days. Some credit improvement strategies to consider include:
- Never pay late.
- Ask for a credit limit increase.
- See if a loved one will add you as an authorized user on an existing credit card.
7. Be cautious about closing old credit cards.
Closing a credit card has the potential to lower your credit scores. This is primary because closing a card — especially one with a $0 balance — might increase your overall credit utilization ratio. Your current outstanding balances won't drop, but those balances are now spread out over a smaller amount of total available credit at your disposal. Anytime your utilization ratio climbs, there a potential for credit score damage.
You should generally only close a credit card if there’s an important reason to do so, like protecting your credit during a divorce or because you’re no longer getting enough value out of a card with a high annual fee. Even then, you may be able to downgrade a premium card to one with a smaller or even no annual fee. If you do need to close a card, the best way to avoid potential score damage is to pay off all of your credit card balances in advance. Doing so may help your utilization remain low even after you close the account.
For more information on credit scores and how to improve them, read these posts:
TPG featured card
Rewards
| 4X | Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 4X | Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 3X | Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com. |
| 2X | Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com. |
| 1X | Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases. |
Intro offer
Annual Fee
Recommended Credit
Why We Chose It
There’s a lot to love about the Amex Gold. It’s a fan favorite thanks to its fantastic bonus-earning rates at restaurants worldwide and at U.S. supermarkets. If you’re hitting the skies soon, you’ll also earn bonus Membership Rewards points on travel. Paired with up to $120 in Uber Cash annually (for U.S. Uber rides or Uber Eats orders, card must be added to Uber app and you can redeem with any Amex card), up to $120 in annual dining statement credits to be used with eligible partners, an up to $84 Dunkin’ credit each year at U.S. Dunkin Donuts and an up to $100 Resy credit annually, there’s no reason that foodies shouldn’t add the Amex Gold to their wallet. These benefits alone are worth more than $400, which offsets the $325 annual fee on the Amex Gold card. Enrollment is required for select benefits. (Partner offer)Pros
- 4 points per dollar spent on dining at restaurants worldwide and U.S. supermarkets (on the first $50,000 in purchases per calendar year; then 1 point per dollar spent thereafter and $25,000 in purchases per calendar year; then 1 point per dollar spent thereafter, respectively)
- 3 points per dollar spent on flights booked directly with the airline or with amextravel.com
- Packed with credits foodies will enjoy
- Solid welcome bonus
Cons
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $6,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com.
- Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- $120 Uber Cash on Gold: Add your Gold Card to your Uber account and get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an American Express Card for your transaction. That’s up to $120 Uber Cash annually. Plus, after using your Uber Cash, use your Card to earn 4X Membership Rewards® points for Uber Eats purchases made with restaurants or U.S. supermarkets. Point caps and terms apply.
- $84 Dunkin' Credit: With the $84 Dunkin' Credit, you can earn up to $7 in monthly statement credits after you enroll and pay with the American Express® Gold Card at U.S. Dunkin' locations. Enrollment is required to receive this benefit.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year after you pay with the American Express® Gold Card to dine at U.S. Resy restaurants or make other eligible Resy purchases. That's up to $50 in statement credits semi-annually. Enrollment required.
- $120 Dining Credit: Satisfy your cravings, sweet or savory, with the $120 Dining Credit. Earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, and Five Guys. Enrollment required.
- Explore over 1,000 upscale hotels worldwide with The Hotel Collection and receive a $100 credit towards eligible charges* with every booking of two nights or more through AmexTravel.com. *Eligible charges vary by property.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.
Rewards Rate
| 4X | Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 4X | Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 3X | Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com. |
| 2X | Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com. |
| 1X | Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases. |
Intro Offer
You may be eligible for as high as 100,000 Membership Rewards® Points after spending $6,000 in eligible purchases on your new Card in your first 6 months of Membership. Welcome offers vary and you may not be eligible for an offer.As High As 100,000 points. Find Out Your Offer.Annual Fee
$325Recommended Credit
Credit ranges are a variation of FICO® Score 8, one of many types of credit scores lenders may use when considering your credit card application.Excellent to Good
Why We Chose It
There’s a lot to love about the Amex Gold. It’s a fan favorite thanks to its fantastic bonus-earning rates at restaurants worldwide and at U.S. supermarkets. If you’re hitting the skies soon, you’ll also earn bonus Membership Rewards points on travel. Paired with up to $120 in Uber Cash annually (for U.S. Uber rides or Uber Eats orders, card must be added to Uber app and you can redeem with any Amex card), up to $120 in annual dining statement credits to be used with eligible partners, an up to $84 Dunkin’ credit each year at U.S. Dunkin Donuts and an up to $100 Resy credit annually, there’s no reason that foodies shouldn’t add the Amex Gold to their wallet. These benefits alone are worth more than $400, which offsets the $325 annual fee on the Amex Gold card. Enrollment is required for select benefits. (Partner offer)Pros
- 4 points per dollar spent on dining at restaurants worldwide and U.S. supermarkets (on the first $50,000 in purchases per calendar year; then 1 point per dollar spent thereafter and $25,000 in purchases per calendar year; then 1 point per dollar spent thereafter, respectively)
- 3 points per dollar spent on flights booked directly with the airline or with amextravel.com
- Packed with credits foodies will enjoy
- Solid welcome bonus
Cons
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $6,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com.
- Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- $120 Uber Cash on Gold: Add your Gold Card to your Uber account and get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an American Express Card for your transaction. That’s up to $120 Uber Cash annually. Plus, after using your Uber Cash, use your Card to earn 4X Membership Rewards® points for Uber Eats purchases made with restaurants or U.S. supermarkets. Point caps and terms apply.
- $84 Dunkin' Credit: With the $84 Dunkin' Credit, you can earn up to $7 in monthly statement credits after you enroll and pay with the American Express® Gold Card at U.S. Dunkin' locations. Enrollment is required to receive this benefit.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year after you pay with the American Express® Gold Card to dine at U.S. Resy restaurants or make other eligible Resy purchases. That's up to $50 in statement credits semi-annually. Enrollment required.
- $120 Dining Credit: Satisfy your cravings, sweet or savory, with the $120 Dining Credit. Earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, and Five Guys. Enrollment required.
- Explore over 1,000 upscale hotels worldwide with The Hotel Collection and receive a $100 credit towards eligible charges* with every booking of two nights or more through AmexTravel.com. *Eligible charges vary by property.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.