Getting started with credit cards to earn points and miles can easily take you to some amazing places in the world and give you incredible value when it comes to booking flights, especially when booking business and first-class awards on airlines such as ANA’s first-class Rooms or Qatar Airways Qsuites. Getting yourself started, however, takes some clever planning and a bit of homework and using the system that has been provided by these points and miles programs. Beginning to then capitalize on the return of your everyday spending to work in YOUR favor. You gotta start somewhere with credit cards. In this article, we will go through what you need to apply for credit from credit card companies, what a credit score is and how we can maintain a good credit score.
Why We Should All Start Using Credit Cards In Our Everyday Lives?
Our debit cards are basically the same as a plastic check: when we make a purchase, it takes the money directly out of our bank account. Which means, if you try to spend $1000 but only have $500 in your account, your transaction will be declined. On the contrary, if you use your credit card, it would mean you “took a loan,” therefore you will be able to spend $1000 if it is in accordance with your credit limit.
Although it sounds more reasonable and risk-free to take a debit card instead of a credit card, we would like to point out some crucial benefits after which, we hope you will reconsider your decision and responsibly enjoy wonderful opportunities with credit cards. So, some of the benefits are:
- They help you build a positive credit history;
- Protect your account;
- Better purchase and travel protections;
- Earn rewards – flights, hotels, upgrades, trip changes, etc.
Now as we have listed some of the benefits, let’s see how credit cards work. Do you have credit established? Is it a good FICO score, 720 or higher? Have you ever even checked your FICO score? Do you know what that is? Yes, no maybe? Well not to worry baby birds, I’ll feed you.
Credit is what banks and lenders are willing to extend to you in the form of a currency amount in the ability of you to borrow and pay back. How your credit report looks to determine a credit score for can be broken down like this:
Payment History – 35%. By far the most important aspect of your credit is ON-TIME payments and late payments have significant effects (additional interest fees).
Utilization of Credit – 30% This is a balance-to-limit ratio based on the amount of credit extended to you. Just because you have a $5k or $100k limit doesn’t mean you should be spending the full amount. The most you are looking to utilize is between 10-30% of your credit on a card and less than 30% total for all of your accounts combined. You should also be paying off your balances in FULL or make small payments to keep your balances lower. If you are looking to make a large purchase, do it! But make sure you have the cash to pay it off right away so you don’t get dinged.
Credit History – 15% This is the overall combined average time you have had credit. Here’s a tip. If you have a credit card(s) that doesn’t cost you anything but have had them for a while, keep them. They help balance out new lines of credit. I personally have had my CHASE SLATE card for 10 years now but with all the other lines of credit I have, it has averaged out to only have a timeline of 3 ½ years.
Types of Credit – 10% This is simply the various types of credit you have such as a mortgage, loans, and credit cards as well as how many accounts you have open. Having multiple accounts open IS NOT necessarily bad for your credit. In fact, having multiple accounts open can very much help your score as it shows you can be responsible with multiple lines of credit and companies are more willing to offer you credit.
Requests for Credit – 10% In other words, “Hard Inquiries.” This doesn’t have that much effect on your score and these will fall off your score in about 2 years.
Your Fico score is then determined by these factors. You are shooting for a score of above 720. If you are not above the 720 marks. Or maybe you have not checked your score? There are plenty of free credit monitoring websites you can utilize to start monitoring your credit. I suggest you check out www.experian.com for free credit monitoring. You can also check with your bank as they usually have a free FICO score monitoring system. As credit cards are more profitable than debit cards for banks. They naturally decided to invest in offering consumers a cut of those merchant fees in the form of rewards.
Nowadays, probably every bank offers some relatively excellent deals for miles/points which you can use for some crazy-good first class flights or a premium room in your favorite hotel. Just keep in mind. Always pay off your balance-in-full so you can avoid high costs of interest fees. Having Interests fees negates the points currency you earn.
Go To Part 2 Of Getting Started With The Right Credit Cards
Use this link to go to the next portion HERE.
Finance disclosure
Opinions expressed here are author’s alone, not those of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post.
