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Why good credit is key to building your point wealth

February 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.

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 photo by (Photo by The Points Guy)

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  • Limited Time Offer: Earn 100,000 Bonus Marriott Bonvoy Points after spending $4,000 in purchases on your new Card in your first 3 months of Card Membership. Offer expires 11/2/22.
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Best Marriott card for Business Owners
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
3 / 5
Go to review

Rewards Rate

6X6x points at hotels participating in the Marriott Bonvoy® program.
4X4x points for purchases made at restaurants worldwide, at U.S. gas stations, on wireless telephone services purchased directly from U.S. service providers and on U.S. purchases for shipping.
2X2x points on all other eligible purchases.
  • Intro Offer
    Limited Time Offer: Earn 100,000 Bonus Marriott Bonvoy Points after spending $4,000 in purchases on your new Card in your first 3 months of Card Membership. Offer expires 11/2/22.

    Limited Time Offer: Earn 100,000 points
    75,000 points
  • Annual Fee

    $125
  • 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.

    670-850
    Excellent/Good

Why We Chose It

The Marriott Bonvoy Business Amex is a stacked card with a rewards rate that will help you earn bonus points on everyday and business-related purchases. You'll earn 15 elite night credits each calendar year, and receive automatic Gold elite status. Finally, the free night award certificate with a redemption level of 35,000 points or less can get you hundreds of dollars in potential value each year.

Pros

  • 6x points on eligible purchases at hotels participating in the Marriott Bonvoy program
  • 4x points at restaurants worldwide, U.S. gas stations, wireless telephone services purchased directly from U.S. service providers and U.S. shipping
  • 2x points on all other eligible purchases
  • Earn a free-night award each card renewal month (up to 35,000 points)
  • Receive 15 elite night credits to jump-start status
  • Transfer Marriott points to 40+ airlines

Cons

  • Airline points transfer ratios are poor
  • Must spend $60,000 in a year for second free-night award
  • Limited Time Offer: Earn 100,000 Bonus Marriott Bonvoy Points after spending $4,000 in purchases on your new Card in your first 3 months of Card Membership. Offer expires 11/2/22.
  • 6x points at hotels participating in the Marriott Bonvoy® program.
  • 4x points for purchases made at restaurants worldwide, at U.S. gas stations, on wireless telephone services purchased directly from U.S. service providers and on U.S. purchases for shipping.
  • 2x points on all other eligible purchases.
  • Receive a 7% discount off standard rates for reservations of standard guest rooms at hotels that participate in the Marriott Bonvoy program when you book directly. Terms and Conditions Apply.
  • Receive 1 Free Night Award every year after your Card renewal month. Plus, earn an additional Free Night Award after you spend $60K in purchases on your Card in a calendar year. Awards can be used for one night (redemption level at or under 35,000 Marriott Bonvoy® points) at hotels participating in Marriott Bonvoy®. Certain hotels have resort fees.
  • Enjoy Complimentary Marriott Bonvoy Gold Elite Status with your Card.
  • Terms apply.
  • See Rates & Fees