Ride some coattails to a higher credit score!

Living off the grid sounds great.  You don’t have to field calls from telemarketers or keep up on with the latest Trump headline.  As long as you find a way to take care of hygiene once in a while, life will be good.

For those of us not looking to live in the wilderness with our family, a credit score becomes very important.  To get a house, car or education, you will need a loan at some point.  In order to get a loan, and then get a great interest rate on the loan, you will need a great credit score.

Many writers, including myself, have written about how to increase your credit score.  FICO, the people who assign your credit score, even have a nice graph that shows what factors affect your score the most.

As long as you make your payments on time and keep your credit utilization low, you should be good.

It can take years to build up a great score.  But what if you want to increase your score quickly?  And with almost no work needed?

There is a way to do just that by using a little feature all credit card issuers offer.  Enter the authorized user.

Authorized User Pros

Almost all credit card companies allow you to assign an authorized user (AU) to your account.  The primary card holder will sign them up, and it can be usually done online by entering some information about the AU.

Once the AU is approved, they get their own card with their name on it.  But all charges need to be paid by the primary card holder.  If the AU goes on a spending spree, the burden will still fall on the primary card holder.  So be very careful who you choose.

The AU does get a number of benefits:

1.  Credit score boost!  This is arguably the biggest benefit of being an AU.  If someone is young with no credit history or has a low credit score due to some past mistakes, becoming an AU can be a good option if the primary card holder has a great credit score.  Being an AU will put the primary card holders info on the AU’s credit report.

While nothing is guaranteed in the credit score boosting arena, if the primary card holder has a great score and a stellar credit history, the AU will almost always see a boost in their own credit score.  This can especially be helpful if one spouse has a great credit score and the other needs to build some credit.  Just add the spouse as an AU and watch their score skyrocket.

2.  Using a great credit card they would have otherwise not have been approved for.  Many people either have no credit or a low credit score.  This means they will likely not be approved for any of the awesome reward cards on the market.  Even though the primary card holder technically gets the rewards, if a family member is an AU it’s more points for everybody!

Having access to a great card such as the Chase Sapphire Preferred or American Express Platinum card has many additional benefits such as primary rental car insurance and travel benefits.  And with the associated credit boost that comes with being an AU, they might be able to get that great credit card on their ownat some point!

3.  Responsibility.  With a safety net.  A credit card is like a machete.  It is a tool that can be used to your benefit.  You can track all of your expenses in one place.  And you can earn some great rewards depending on what type of card you have.  Responsible credit card use has many benefits.

But it is also a tool that can harm you if not wielded properly.  Late payments and carrying a balance will dig you a financial hole real fast.  Double digit interest rates will quickly erase any gains from investments you may have.  And it’s really easy to get into credit card debt if you’re not careful.

Being an AU eliminates the risk of you getting into trouble with a credit card.  But only because the responsibility is on the primary card holder!  Hopefully, they are savvy enough to be able to erase your mistake and counsel the AU on not making them again.  This is a rare free pass in the financial world.

So the risk falls squarely on the primary card holder.  The AU is in the clear.  But if they’re not careful, the primary holder just has to make a call and tell the company to drop the AU.  So the risk is there, but can be minimized in an instant.

Big Upside with Little Risk

Adding an AU is an easy process that can be potentially beneficial for the AU.  It can provide a nice credit score boost if the primary card holder has a great score.  And the AU will get the benefits of using a credit card with potential rewards.

The risk falls on the primary card holder.  If the AU has a spending problem, the primary holder has to foot the bill.  Luckily, they can also cancel the AU in an instant.  So the risk is relatively small.

So to summarize, you CAN increase your credit score pretty quickly if you become an AU with someone that has a great score.  A lot will still depend on your own credit activity, but if you make it a point to pay your bills on time and not over utilize your credit, signing up as an AU can provide a nice credit score boost.

Credit cards are one financial topic that everyone has an opinion about.  Even people who don’t have much interest in finance will have some sort of take on credit cards.

Some people swear by them.  Other people swear AT them.  Some people use them for every transaction.  While others have never used one in their lives.

Credit cards are an ever present force in our society.  You can’t go on an airplane nowadays without being asked to sign up for the latest and greatest credit card.  Commercials, magazine ads and internet ads with credit card offers inundate us regularly.

And let’s not forget good old snail mail.  Everyone’s mailbox will eventually receive an offer for the latest sign up or balance transfer offer.  It’s inevitable.

I’ve written before about the utility of credit cards.  They are a tool, and just like any tool they can help you or hurt you depending on your use.

Almost all of us have credit cards.  The question is, how many should we have?  Can you have too many?  Or even too few?  Let’s take a look at the factors that will decide how many cards you should have.

1.  Life Experience

Right now, I have 36 credit cards open.  To most people, that may seem like a lot.  But believe it or not, to others that does not seem like that much.  You’ll find out later why that number is just right for me.

I got my first credit card at age 19.  It was a gas station credit card that gave a whopping 2% cash back at BP gas stations.  I didn’t know much about personal finance (or life) at 19, so I thought that card was all I needed.

I would not have been able to handle more than one card at that time, let alone 30+.  I just didn’t know enough about how life worked to be able to handle more.  So life experience is definitely a key ingredient for being able to handle many credit cards.

2.  *****Paying off your balance in full******

Notice the asterisks.  This is THE KEY factor that will determine if you can handle many credit cards, or none at all.  Being able to use credit cards is not a right but a privilege.  And the privilege comes from NOT being the type of person that gets into credit card debt.

Credit card debt is expensive.  It’s one of the most expensive type of debts out there short of owing a loan shark.  And most of Americans have it.

I won’t go all Dave Ramsey on you and say no one should have credit cards.  But if you routinely do not pay off your balances in full, you should not have a credit card.  Period.

Credit card interest rates are insane.  Cards on the “low end” will be about 8%, while many cards can easily approach 30%.  No one should be carrying this type of debt.  So if you carry any type of credit card debt, unless it’s a 0% promotional offer, you need to pay that off ASAP.

And don’t make it worse by racking up more credit card debt.

3.  Credit Score

When it comes to having credit cards, your credit score is a key factor.  If you want to be approved for many credit cards, you need to have a high credit score and a credit history clear of any delinquent activity.  A long history of on time payments helps too.

And contrary to popular belief, having lots of credit cards DOES NOT lower your credit score.  While opening up some new credit will temporarily lower your score by a few points, it will not hurt it in any appreciable way.

The most important factors in one’s credit score are on time payments and credit utilization ratio (this is straight from the people at FICO).  Having many credit cards helps BOTH of these categories.

Having lots of on time payments will help your credit score.  And having lots of cards, but not using most of them, will keep your credit utilization percentage very low.

My credit score has skyrocketed ever since I started applying for credit cards.  And that’s because I always try to pay on time and only use the cards when I need them.

4.  Rewards Chasing

This is the only, and most lucrative, reason anyone should have many credit cards.  As you can tell by just checking your mail once in a while, credit cards love offering sign up bonuses.  Those offers that say something like “Spend $2,000 in 3 months and get 10,000 points”.

These offers are real money makers for credit card companies.  While they are giving up a little in terms of points or cash back, they get that back and then some with swipe fees and interest payments.  And many people don’t even redeem their reward points anyway.  The credit card companies have everything to gain.

But if you’re disciplined enough not to overspend and always pay off your balance in full, the consumer stands to gain a little as well.  There are many really bad sign up offers.  But there are some great ones as well.  The key is to find the great ones, do just enough to meet the sign up offer, and then store the credit card away if it’s not useful for you. (Frequent Miler is my go to resource for this).

Using this method, I’ve been able to take my family on many flights and hotels for almost nothing.  I’ve also gotten a good amount of cash back rewards (which are tax free!).  So reward chasing has definitely been worth it.

But it’s only worth it if you maintain your great credit score and never carry a balance.  Interest rates on rewards credit cards are notoriously high.  If you end up carrying a balance on a rewards card, it will quickly negate any sort of rewards you earn.

5.  Organization

The last important thing you need in order to be able to handle many credit cards is being organized.  This is especially important for rewards cards since they can have annual fees that can be avoided if you close them on time.

A simple spreadsheet will do just fine.  I use one that has the date I applied for the card, the sign up bonus requirements, any annual fees and when I closed the card.  Trying to do all of this in your head will eventually lead to a mistake.

And you need a central place for all of your credit cards.  I currently store them in an old checkbook box.  But I think I may need to upgrade to a shoebox.  Or you can just have a drawer with all of your unused cards.  Just keep them all in one place away from your kids.

So how many cards SHOULD you have?

It depends.  I know, I hate that answer just as much as everybody else.  But it’s true.  There are some people that have no business having more than one card.  Or any cards at all.  People who regularly carry balances fall under this category.

And then there are others who can seamlessly handle 50 cards at any time.  It takes a good understanding of your personal financial system and a lot of organization.

Plus, it has to be worth your while.  And chasing the best of the best rewards can definitely be worth it.  So if you don’t feel you can handle many credit cards, no need to despair.  Just do what you’re comfortable with at the moment but make it a point to learn about the credit card industry and how you can use it to help your finances.

Your credit score is one of the most overlooked parts of personal finance.  Most people don’t know what their credit score is, why it’s important, what contributes to your score and how you can improve it.  I will go into all of that and more.  If you take away only one thing from this discussion, it should be that improving your credit score is a sure fire way for you to save THOUSANDS of dollars across a lifetime.  This is because if you have a great credit score, you will get the best interest rates on mortgage and car loans.  Getting the best rate can save you tens of thousands of dollars on your mortgage alone.

Credit Score basics

Your credit score is a number between 300-850 that lenders use to determine if you are a risky borrower or not.  Generally speaking, the lower your credit score, the more risky you look to lenders.  Which means they will offer you the higher end of their interest rates.  The opposite holds true for those with high credit scores.  This means you will get a great rate for your mortgage, car loan and be accepted for all of the awesome credit cards available.

What goes into your credit score?  Let’s go straight to the source:  The Fair Isaac Corporation (FICO).  Your credit score is also called your FICO score, so it pays to listen to what they tell you.  Here is a nice little pie chart that lays it all out there for you:

Creditsesame

Looking at the chart, it’s easy to see what makes up the majority of your score: payment history, amounts owed and length of credit history.  So as long as you make your payments on time, don’t go near your credit limit on your cards and do that for a few years, your credit score will most likely be excellent.

Conversely, there are a few things that can absolutely KILL your credit score.  And it’s a lot easier and faster to lower your score than it is to increase it.  Making late payments is the #1 surefire way to kill your credit score.  Looking at the chart makes that obvious, but it also makes perfect sense from a lender’s point of view.

If you’re shopping for a home loan, the lenders will look at your credit score.  If your score is low, it tells them you probably don’t pay your bills on time.  While this may or may not be a fair judgement based on one number, a low credit score will nonetheless discourage them from offering you their lowest interest rates.

And late or missed payments can include anything:  Credit card bills, past mortgage payments, rent, car payments, cell phone bills, utility bills and student loan payments.  All of this stuff gets reported to the credit bureaus, so staying on top of your payments is vitally important.

Do Business Online

What’s the best way to make all of your payments on time?  Do everything online.  This makes things really easy as you can just bookmark all of your monthly bills and pay them right online.  Many also allow automatic payments, which pretty much guarantees on time payments.  Use technology to your advantage when it comes to your credit score.  Your future self will thank you.

Another way to hurt your credit score?  Getting really close to your credit limit.  This usually refers to credit cards, and it specifically refers to your credit utilization ratio.

If you have a $20,000 credit limit across all of your cards, and are consistently charging $19,999 every statement period, this shows lenders that you’re using too much credit.  You are a risky borrower in their eyes.  There are two ways to fix this.  The obvious one is don’t spend up to your credit limit!  Either switch to cash for some payments or go through your spending history and cut out the unnecessary stuff.

Another way is to request a credit limit increase.  Just call the number on the back of your credit cards and ask if you can get your limit increased.  Some will do it and some won’t.  But any increase in your credit availability will help your ratio.  Increasing your credit limits and decreasing your spending at the same time would be the ideal way to go.

Conclusion

According to the FICO pie chart, new credit and types of credit used also contribute to your score.  This is only 20% of your score, so it’s not really worth focusing a lot of your time on, especially if you have problems with late payments.  Opening a lot of lines of credit will temporarily decrease your score a few points, but it will go back up once they realize you’re still making your payments on time.  Focusing on late payments and high credit utilization ratios, the two credit score killers, is the quickest and most important way to improve your score.

(Hey everyone.  The following is a guest post from my friend Ryan, who specializes in financial planning for physicians.  He’s doing great work since many physicians and other health professionals are clueless when it comes to their finances.  In this post Ryan talks about a unique aspect of doctor’s credit scores.  Enjoy!)

As a financial planner who specializes in working with doctors and their families, I’ve realized over time that many doctors do have high credit scores. Having a high credit score enables doctors to get competitive interest rates on mortgages, car loans, and more. It also shows lenders that they’re not only accomplished physicians but responsible borrowers who pay their bills on time.

I’ll expand more why doctors typically have high credit scores by outlining how a credit score is actually calculated. That way, if you’re a doctor who wants to raise your credit score in anticipation of a big purchase, you’ll know the steps to take to increase your score to get the best opportunities available to you.

Here are some of the reasons why physicians typically have high credit scores:

1.  Length of Credit History

The length of your credit history definitely factors into your score. For many doctors, taking out student loans is the first step in establishing a credit history. If you start taking out loans as an undergraduate, you’ll have at least 7-8 years of credit history by the time you finish residency.

If you didn’t take out student loans as an undergraduate but you did as a graduate student or medical school student, you’ll still have a few years of credit history under your belt. This helps to improve your score.

2.  Payment History

Your payment history is probably the most important aspect of your credit score because it makes up a whopping 35% of your score. This is the part of your score that shows lenders you’re a worthy investment and that you’ll pay them back on time.

The great news is that once you take out student loans, you’ve started a credit file. Even if your student loans aren’t due yet, your account is in good standing month after month while you’re in school. Lenders love to see this.

If you have credit cards in addition to your student loans, be sure to pay these on time as well. Even if your student loan accounts are in good standing, missing a credit card payment will be detrimental to your score. So, make those payments on time every time solely because your payment history factors so heavily into your overall credit score.

3.  Debt Utilization

 Having a low debt utilization percentage is a fancy way of saying that you’re living within your means. Your debt utilization percentage is how much debt you have relative to the amount of credit available to you. So, if you have 5 maxed out credit cards, your debt utilization percentage will definitely hurt your credit score. However, the more available “space” you have on your revolving credit, like credit cards, the better your credit score will be.

The great news is that student loans are considered installment debt, not revolving debt. They’re a different type of debt than credit cards and thus aren’t factored into this debt utilization score. So, if you have hundreds of thousands of dollars in student loans but you’re not carrying a balance on your credit cards, your debt utilization percentage will be low, which is good for your credit score.

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Now that I’ve listed the three parts of a credit score where doctors typically excel, I want to take the time to write about what can hurt your credit score too.

After all, the goal in life is generally to become financially well off, self-sufficient, and happy. Having a strong credit score can enable you to get lower interest rates on some of your biggest purchases, saving your thousands and thousands of dollars over the course of your life. This, in turn, will allow you to use your hard earned money for the things you actually want to do.

So, be aware of these two parts of a credit score as well:

1.  Credit Mix

 Lenders actually want you have a few different types of loans, called a credit mix, because it shows them that you’re able to successfully handle various types of payments like a house payment, credit card payment, and a car payment.

If you only have student loans, this could lower your score, but if you mixed it up a bit (see what I did there?) you could raise your credit score by a few points.

For older doctors who own houses, cars, and have business loans, it’s easy to have a decent credit mix. However, newer doctors who are just finished training might not have many different types of loans.

Keep in mind that credit mix is a small portion of your score and you shouldn’t go and take out loans that you don’t need for the sole purpose of improving this part of your score. However, if you need to bump up your score a few points to qualify for a better mortgage interest rate, diversifying the types of loans you have is something you can try.

2.  New Accounts

This might seem a little counter-intuitive to the point mentioned previously, but it’s something worth mentioning. Basically, lenders don’t like it when you open a bunch of new accounts at once. It signals to them that you’re in need of a lot of credit quickly or that you’re somehow in need of financial help.

Creditsesame

So, avoid opening several different credit cards in one year. At the same time, avoid closing your old accounts. Lenders might not like to see a lot of new accounts but they love seeing old accounts in good standing. It shows that for many years you’ve been good about having loans and paying them back on time.

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Keep in mind that as you go through your daily life, your credit score will fluctuate. It’ll fluctuate as you pay down debt. It’ll change if you refinance your student loans. It will also change if you get a new travel credit card or a new house. It’s okay for your score to go up and down some, as long as you’re consistently making your payments and checking your credit report regularly to ensure your identity is safe. I tell my clients to sign up for an account at Credit Karma because it’s free, you can check your score whenever you want, and you can dispute anything that’s not right your credit report easily and most importantly, quickly. After all, you don’t have a lot of free time to worry about your finances, right?

So, the good news for all the doctors reading this is that you probably have a high credit score already due to the points I mentioned above. However, if you don’t or if you’re looking to boost your score a few points, that’s absolutely possible by understanding how your credit score is calculated and knowing how you can improve it over time.

Ryan Inman is a fee-only financial planner who specializes in helping physicians and their families build a solid financial future through his firm, Physician Wealth Services. As the husband of a physician, Ryan has a unique insight into what it’s like to be a part of a physician family and thoroughly enjoys helping his clients. To schedule a free 30 minute consultation, feel free to contact Ryan at any time.

You hear the word “hacking” a lot nowadays.  Traditionally, hacking was thought of as something negative.  Something we would not want our kids to do.

We think of a recluse living in his parents basement trying to break into a federal organization.  Or a group trying to take down a big evil organization’s website (which is pretty cool depending on who the big evil organization is).

But hacking has evolved recently.  Now you see articles about hacking your sleep or hacking your parenting.  You can find hacks to make it easier to cook dinner or decorate your home.  A hack is essentially a quick shortcut to make your life better.

The term travel hacker has also been in the media lately.  You read about people that have taken month long expeditions around the world for free (disclaimer: it’s not really free).  I’ve talked to many people about travel hacking and most shrug their shoulders and adopt a “must be nice” attitude.

As in, “must be nice for them but I would never be able to do something like that.”  While not everyone has the time or resources to travel hack their way to around the world trips, I will show you how pretty much anyone can travel for a lot less money.

Levels of Hacking

I’ve played basketball since I was a little kid.  I still enjoy playing it whenever I can get time.  Technically, I would call myself a basketball player.

You know who else is a basketball player?  Steph Curry.  While he is a (slightly) better basketball player than me, we’re both basketball players.  He is just on a (much) higher level.

The same thing applies to travel hacking.  If you just look at those “Steph Curry’s” of travel hacking who make elaborate trips to every continent with points, you will get disappointed.

But travel hacking, specifically travel hacking with credit cards, is a very accessible endeavor that can be scaled up as much as you wish.  It just depends on how much time you’re willing to put in.

I’ve been doing some low level travel hacking with credit cards for a few years now.  My wife is from the West Coast so we make trips there every so often.  Our goal is to at least make those trips with points along with a couple of vacations per year.  This is very attainable with a few hours of planning per month.

If you want to travel with your family of 5 to fancy European cities in first class, this is attainable as well.  But it’s going to take a lot of work.  It will amount to a full time job between signing up for credit cards, and staying on the phone with airline reps.  But it is possible, if you’re willing to put in the work.

My strategy:  Get the most lucrative credit card offers I can find and use those points to take our eventual West Coast trips.  This is essentially getting the “low hanging fruit” of travel hacking and optimizing it as much as possible.

It’s kind of like the 80/20 rule.  Give 20% effort to get 80% of the results.  That’s good enough for most people.  If I want to get better results, I need to give more effort but the work will be a lot more.  I currently don’t have the inclination to work 20+ hours a week to get better point redemptions, but I can if I choose to.

Anyway, here are the nuts and bolts of my current travel hacking strategy.

3 Steps to Travel Hacking

BIG Disclaimer:  Travel hacking with credit cards should not be an option if you plan to make late payments and not pay your balance off in full.  Any interest or late fees will quickly erase the reward benefit.  You have been warned!!

Without further ado here are the three steps it takes to get started in travel hacking:

1.  Apply and get approved for a credit card with a great sign up bonus.  (See some examples at the end of the post.)

You will need a pretty good credit score to get approved for most reward cards.  While there is no hard and fast rule, a credit score of 700 or above is usually good enough.

2.  Meet the minimum spend to snag the sign up bonus.

If a card offers a bonus of 50,000 points, for example, you will have to meet a minimum amount of spend in a certain amount of time to get those points.  A common one is spend $3,000 in 3 months.

While there are a ton of ways to increase spending artificially (and there are many blogs that will teach you how in depth), start with a bonus offer that is attainable with your regular everyday spending.  You can always scale up to a bigger offer once you feel comfortable.

3.  Repeat with another card.

You should cancel the first card if it has an annual fee and you don’t plan on using it.  If there is no annual fee, just keep the card and stick it in a drawer since having more credit will improve your credit score over time.

Something for Everybody

And that’s all there is to it.  There are so many strategies involving finding the best cards to apply for and when to apply.  Countless methods also exist to “manufacture” spend which will allow you to spend more to meet sign up bonuses without actually spending any of your own money.  So this stuff can get deep.

You can take a deep dive if you wish to find out more about these strategies.  Two sites that will provide you the advanced strategies you need for travel hacking are Million Mile Secrets (where I was featured once here!) and Frequent Miler.

But if you want to just stay on the surface and do one credit card bonus at a time to get easy rewards every few months, that’s okay too.  Travel hacking has a place for everybody.

Here are some good credit card bonuses that are currently available and some brief information about them (I don’t make anything off of these links):

Chase Sapphire Preferred:  Get 50,000 Ultimate Reward points after spending $4,000 in 3 months.  This is the go to card for many people including myself.  It gives you double points on travel and dining purchases.  And Ultimate Reward points are very versatile.  You can use them for cash back, flights or transfer to airline or hotel programs.

Chase Freedom:  Get $150 cash back after spending $500 in 3 months.  This is a great cash back card to have since the bonus is easy to get and it features 5% categories each quarter.  So one quarter of the year you will get 5% cash back on dining purchases, for example, and the next month will get 5% on gas purchases.

Chase Southwest:  Get 40,000 Southwest points after spending $1,000 in 3 months.  I fly Southwest a lot and I know a lot of people that do as well.  Southwest points are pretty valuable, and this sign up bonus can easily get you $500 worth of flights.

American Express Premier Rewards Gold:  Get 25,000 Membership Rewards points after spending $2,000 in 3 months.  AMEX has many good travel cards and this is one of the best.  Membership Reward points can be used to book flights directly and can be transferred to other programs.  This card also gets you double points at restaurants, grocery stores and gas stations.