Debunking credit card myths: Do my assets affect my credit score?
This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. Terms apply to the offers listed on this page. For an explanation of our Advertising Policy, visit this page.
It’s no surprise that travel rewards credit cards get a lot of coverage here at TPG.
By strategically applying for and then utilizing these cards, you’ll unlock the ability to redeem your hard-earned points and miles for things such as first-class flights and luxurious hotel rooms. However, there are a number of misconceptions out there when it comes to credit cards, so today I’ll continue our January series that debunks these myths and allows you to begin planning for your next vacation.
Today, I’ll consider another aspect of your financial profile that seems like it should have an impact on your ability to be approved for a card.
For more TPG news delivered each morning to your inbox, sign up for our daily newsletter.
Your assets and the relationship with your credit score
There’s a popular misconception out there that high net worth equals a high credit score.
On the surface, this makes sense. If you own a home, own a car, have large investment accounts or maintain significant balances in your checking or savings, this should theoretically make you more attractive to credit card issuers. After all, you’re probably less likely to default if you have significant capital to cover your monthly purchases.
However, when it comes to computing your actual credit score, your collection of assets (or lack thereof) doesn’t have any impact. Once again, let’s revisit the five main factors that contribute to your FICO score, the one most frequently used to determine creditworthiness:
- Payment history
- Amounts owed
- Length of credit history
- New credit
- Types of credit used
As discussed in previous installments of this series, these five factors are weighted based on how important they are to your score.
As you can see, none of these are explicitly tied to assets such as bank accounts or other personal property. Instead, they all relate to how well you have managed the lines of credit that have been extended to you. Just because you’re a high-net-worth individual doesn’t guarantee that you can keep your credit utilization rate low, pay your bills on time, etc.
Now, that being said, there is one important way that your assets can impact your credit score: when you have installment loans associated with those assets (such as a mortgage or car loan).
These types of accounts give you additional ways to build up your credit history, and they can also vary the types of credit you are using. Believe it or not, owning a house and car free and clear could actually be a negative when it comes to your credit score, as your credit profile may be limited to only credit cards.
In addition, while your assets won’t directly impact your credit score, they do play at least a small role in the credit card application process. Just about all issuers will ask the following questions (in some way) when you apply for a new card:
- Do you have a checking account, savings account or both?
- Do you rent or own?
If you answer “both” to the first question, that may signal that you are financially responsible, and owning a home could also help you be viewed in a positive light. However, remember that the issuer has no way to verify the authenticity of these two answers (unless your accounts and mortgage are with the same bank), so they won’t have any formal impact.
For additional recommendations for managing your credit card account(s), be sure to check out my Ten Commandments for Rewards Credit Cards.
Many new readers may think that getting into the points and miles hobby (especially with premium cards such as the Chase Sapphire Reserve) is limited to those with significant assets and high net worth. While this does apply to certain cards, the most important factors on your credit score are those related to how well you’ve managed your credit through the years.
Don’t let a perceived lack of assets prevent you from applying for a new card.
Additional reporting by Chris Dong.
Featured photo by Westend61 / Getty Images.
Welcome to The Points Guy!
WELCOME OFFER: 60,000 Points
TPG'S BONUS VALUATION*: $1,200
CARD HIGHLIGHTS: 2X points on all travel and dining, points transferrable to over a dozen travel partners
*Bonus value is an estimated value calculated by TPG and not the card issuer. View our latest valuations here.
- Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $750 when you redeem through Chase Ultimate Rewards®. Plus earn up to $50 in statement credits towards grocery store purchases.
- 2X points on dining at restaurants including eligible delivery services, takeout and dining out and travel & 1 point per dollar spent on all other purchases.
- Get 25% more value when you redeem for travel through Chase Ultimate Rewards®. For example, 60,000 points are worth $750 toward travel.
- With Pay Yourself Back℠, your points are worth 25% more during the current offer when you redeem them for statement credits against existing purchases in select, rotating categories.
- Get unlimited deliveries with a $0 delivery fee and reduced service fees on eligible orders over $12 for a minimum of one year with DashPass, DoorDash's subscription service. Activate by 12/31/21.
- Earn 2x total points on up to $1,000 in grocery store purchases per month from November 1, 2020 to April 30, 2021. Includes eligible pick-up and delivery services.