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Why good credit is key to building your point wealth

Feb. 25, 2020
8 min read
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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.

Figuring out your credit score for free these days is a simple process. (Photo by Maskot/Getty Images)
Take a close look at your credit report for inaccurate information. (Photo by Maskot/Getty Images)

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.

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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.

Hands holding credit card and coffee to go. Photo by Popartic/Getty Images
If you have existing balances on your cards, pay them down as quickly as you can. (Photo by Popartic/Getty Images)

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:

Featured image by (Photo by The Points Guy)

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Our points-obsessed staff uses a plethora of credit cards on a daily basis. If anyone on our team wouldn’t recommend it to a friend or a family member, we wouldn’t recommend it on The Points Guy either. Our opinions are our own, and have not been reviewed, approved, or endorsed by our advertising partners.
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TPG featured card

Best card for premium perks while traveling
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review

Rewards

2 - 10X points
10XEarn unlimited 10X miles on hotels and rental cars booked through Capital One Travel
5X5X miles on flights booked through Capital One Travel.
2X2 Miles per dollar on every purchase, every day

Intro offer

75,000 bonus miles
Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel

Annual Fee

$395

Recommended Credit

740-850
Excellent
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.

Why We Chose It

The Capital One Venture X card is one of the best all-round travel credit cards ever launched. Not only is it offering a tremendous welcome bonus, but cardholders can earn tons of miles on everyday spending and receive a 10,000-mile anniversary bonus to boot. Its annual fee is $395, but cardholders can count on up to $300 in statement credits toward travel booked through Capital One Travel each year and other valuable benefits like access to Priority Pass lounges and Capital One’s own growing family of airport lounges.

Pros

  • Excellent welcome offer worth 75,000 miles after you spend $4,000 on purchases in the first three months.
  • Up to $300 in annual travel statement credits toward bookings make through Capital One Travel.
  • 10,000 bonus miles (worth $100 toward travel) each account anniversary.

Cons

  • The $395 annual fee might be expensive for some, but this card’s benefits provide much more value than that.
  • If you don’t travel frequently, this might not be the best card for you.
  • Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
  • Receive up to $300 back annually as statement credits for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of options
  • Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
  • Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights booked through Capital One Travel
  • Earn unlimited 2X miles on all other purchases
  • Unlimited complimentary access for you and two guests to 1,300+ lounges, including Capital One Lounges and the Partner Lounge Network
  • Receive up to a $100 credit for Global Entry or TSA PreCheck®
  • Use your Venture X miles to easily cover travel expenses, including flights, hotels, rental cars and more—you can even transfer your miles to your choice of 15+ travel loyalty programs
  • Named editors' choice for "Best New Credit Card of 2021" by The Points Guy
  • Earn 10 miles per dollar when you book on Turo, the world's largest car sharing marketplace, through May 16, 2023
Best card for premium perks while traveling
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review

Rewards Rate

10XEarn unlimited 10X miles on hotels and rental cars booked through Capital One Travel
5X5X miles on flights booked through Capital One Travel.
2X2 Miles per dollar on every purchase, every day
  • Intro Offer
    Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel

    75,000 bonus miles
  • Annual Fee

    $395
  • Recommended 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.

    740-850
    Excellent

Why We Chose It

The Capital One Venture X card is one of the best all-round travel credit cards ever launched. Not only is it offering a tremendous welcome bonus, but cardholders can earn tons of miles on everyday spending and receive a 10,000-mile anniversary bonus to boot. Its annual fee is $395, but cardholders can count on up to $300 in statement credits toward travel booked through Capital One Travel each year and other valuable benefits like access to Priority Pass lounges and Capital One’s own growing family of airport lounges.

Pros

  • Excellent welcome offer worth 75,000 miles after you spend $4,000 on purchases in the first three months.
  • Up to $300 in annual travel statement credits toward bookings make through Capital One Travel.
  • 10,000 bonus miles (worth $100 toward travel) each account anniversary.

Cons

  • The $395 annual fee might be expensive for some, but this card’s benefits provide much more value than that.
  • If you don’t travel frequently, this might not be the best card for you.
  • Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
  • Receive up to $300 back annually as statement credits for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of options
  • Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
  • Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights booked through Capital One Travel
  • Earn unlimited 2X miles on all other purchases
  • Unlimited complimentary access for you and two guests to 1,300+ lounges, including Capital One Lounges and the Partner Lounge Network
  • Receive up to a $100 credit for Global Entry or TSA PreCheck®
  • Use your Venture X miles to easily cover travel expenses, including flights, hotels, rental cars and more—you can even transfer your miles to your choice of 15+ travel loyalty programs
  • Named editors' choice for "Best New Credit Card of 2021" by The Points Guy
  • Earn 10 miles per dollar when you book on Turo, the world's largest car sharing marketplace, through May 16, 2023