Step 8: Credit Scores

Every individual in the US is assigned a credit score by one of the three major bureaus: Equifax, Experian, and TransUnion. These credit scores are separate but should usually be within 10-20 points of each other, because the things they are based on are the same.

The higher your credit score is, the more opportunity you have to be approved for credit cards and other loan products, and with more favorable interest rates and terms. These credit cards are the same ones that offer very high sign-up bonuses in the form of miles, points, and other ways to get free travel, and they will be the single biggest source of miles and point for most people who follow this guide.

Your credit score will almost always be very high if you pay all your bills on time and in general use credit responsibility, and before going any further, you should have an estimate of your current credit score.

There are several free services you can use to get a pretty good estimate of your score (if you’ve recently paid for or obtained your score in another way, skip this part):

Credit Sesame

Quizzle

You really only need to get a general idea of your score, and it should be in the 700-800 range if you’re going to join the game. As I said before, which bureau isn’t important because they’re all pretty close (in theory).

So at this point, you have your score and it should really be above 700 to really get the most out of hacking credit cards to get a ton of miles and points. The next phrase I’m going to introduce is perhaps the most important one in this post or series. It forms the basis for how we are going to use your credit score to your advantage and allow the banks to freely give you hundreds of thousands, even millions of points, for free.

Extra Credit

There’s a magic number for credit scores that distinguish general categories you may have heard before, such as Good Credit, Bad Credit, Excellent Credit, and the like. The absolute highest score you can achieve is an 850, but in 99 percent of cases, having a 750 credit score will get you absolutely no less benefit than having a perfect 850. In this case, the person has 100 points of “Extra Credit” they could use.

What can extra credit be used for?

Every time you apply for a credit card, your credit score will take up to a five-point hit due to something called a “hard inquiry”. Each bank will usually only pull from one of the three credit bureaus per application, which actually gives the person in the example above with three perfect scores 300 points of extra credit.

What else goes into a credit score?

Inquiries are only a small part of the equation, namely 10 percent. (labeled New Credit below)

The following chart shows a graphical representation of what factors into a credit score.

From myFICO.com

For a very thorough discussion different things that can affect your credit score, myFICO has a helpful document here .

At the end of this step:

  • You have obtained your credit score either independently or from one of the three free services linked above.
  • You have a basic understanding of how a credit score is calculated.
  • You understand the effect of a hard inquiry on your credit score.