Understanding Your Credit Score and How Travel Credit Cards Affect It

In this episode of the Lazy Budget Travel Tips podcast, host Genni Franklin breaks down how credit scores work, why they matter, and how travel rewards credit cards can impact them. 

Genni explains the components of a credit score, such as payment history, credit utilization, length of credit history, and credit mix. 

She emphasizes the importance of responsible credit card use and offers practical tips on monitoring and improving your credit score.

She also covers how you can check your credit score for free.

Timestamps: 

00:00 Introduction to Credit Scores and Travel Rewards
01:26 Understanding Your Credit Score
03:56 Impact of Credit Inquiries
04:49 Key Components of Your Credit Score
05:46 Managing Credit Utilization
07:42 Length of Credit History and Credit Mix
08:55 Checking and Monitoring Your Credit Score
09:32 Managing Multiple Credit Cards
11:09 Conclusion and Final Tips 

Check your Credit Score - for FREE

• Sign up for Credit Karma
• Sign up for Experian Boost

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Transcript

Welcome back to the Lazy Budget Travel Tips podcast. I'm your host, Genni Franklin from the Traveling Franklin's blog and the Lazy Budget Travel Tips Facebook group. Today we're diving into one of the biggest concerns people have when it comes to credit cards, your credit score. 

You might be wondering, will getting a credit card hurt my score? Will I end up in debt? So in this episode, I'll walk you through how your credit score works, why it matters, and how travel rewards credit cards can impact it. Plus I'll show you how to check your score for free. In a previous episode, we laid the foundation by talking about points, miles, and loyalty programs, and why I believe they're the key to a long-term sustainable budget travel strategy.
 
The goal isn't just to spend less on travel, [00:01:00] it's to travel better without sacrificing comfort or quality. Points and miles can take you wherever you want to go. Business class trips around the world. Yep. Quick economy, flights to visit. Family. Absolutely.
 
Travel reward credit cards help you earn those points of miles faster by leveraging the spending you're already doing.
 
So let's get into it. First off, what is your credit score anyway? We hear about credit scores all the time, but do you actually know what it means? Well, your credit score is a three digit number, typically ranging from 300 to 850. That signals your credit worthiness to lenders. It's generated using data from the three major credit bureaus.
 
Experian, TransUnion and Equifax, they collect info about your credit history, like your payments [00:02:00] accounts, and credit use and scoring models like FICO or Vantage Score Crunch, the numbers. Your credit score tells lenders, can I trust this person to pay me back? Most people think of credit scores in terms of getting approved for a credit card, but it really impacts so much more.
 
So yes. Even if you never plan to get a travel credit card, your credit score still matters. A lot, and when it comes to credit cards, a score over 700 usually puts you in a pretty good spot. In my experience, people usually fall into two camps when it comes to their credit score. They never check it and have no clue what it is, or they check it constantly and panic when it drops a point.
 
I believe in always knowing your score, but I don't check it daily, and I definitely don't [00:03:00] stress about it when it drops from 10, 20, or even 30 points. Why? Because I follow credit card best practices and my score has consistently stayed between 830 and 850 for years.
 
Even if it dipped by 30 points, I'd still be in really good shape. So what's the goal? Well, you wanna keep your score above 700. That's it. No need to chase perfection, but how did my credit score get that high? Well, it's definitely not because I don't have any credit cards. In fact, my credit score has improved significantly since I started applying for more credit cards the right way.
 
So if you're out there thinking, well, my credit score should be great because I don't have any credit cards, or I have credit cards, but I don't use them,
 
you may be thinking about it the wrong way. 

Now let's talk about hard inquiries, [00:04:00] also known as hard pulls.
 
These happen when you apply for something like a mortgage, a car loan, or Yes. A credit card, they can temporarily lower your score. Sometimes just a few points, sometimes more, but if your score is already solid and you are applying responsibly, don't stress, it'll bounce back even higher.
 
And then there's soft inquiries or soft pulls. This is when you or someone else checks your credit score for non-lending reasons, like pre-approvals or personal finance apps. Just like Credit Karma or Experian Boost. These don't impact your score. So yes, you can keep tabs on your credit without hurting it.
 
So let's break down the key components of your credit score. The first one is payment history, which is 35% [00:05:00] of your credit score.
 
This is probably the most important factor. You always, always want to pay. Your credit cards or any loans on time, no exceptions. 

Think of a credit card, like a debit card. Only use it for purchases you can afford to pay off when you get your credit card bill. Every month after your statement or billing period has closed. There will be a number labeled on your statement called statement balance. As long as you pay this entire amount by the due date, you will never pay any interest.
 
So when someone says credit cards automatically mean debt, they're wrong if you do it this way.
 
The next one is credit utilization, which is 30% of your credit score. This is another big factor, and it's the percentage of credit you're using [00:06:00] compared to what you have available, and you wanna aim for this being less than 30%. I've had people say to me, I don't understand why I can't get my credit score over 700. I only have a couple of credit cards and I never use them.
 
And that's their problem. They think that having less credit available to them is going to be better for their score, but they actually may be shooting themselves in the foot. Lenders and creditors like to see that you can handle and use credit responsibly, but they also want you to use your credit. So if you don't have a lot of credit to begin with and you're not using it, that's not necessarily a good thing because you're not using or utilizing your credit at all.
 
Or if you have a little credit to begin with and you're using it on a regular basis. Then your credit utilization may be really high. So it is a balance. [00:07:00] You wanna be using 30% or less of your credit, but not zero. So this is what I do. I have a lot of credit available to me because I do have several credit cards, but I only use a core group of credit cards that earn me travel rewards.
 
This keeps my credit utilization between three to 5%, but if yours is higher but less than 30%, you should be pretty good.
 
And if your credit utilization is over 30%, you may want to consider the amount of credit available to you and maybe opening up some new credit cards responsibly, of course. 

 The next one is the length of credit history, which is 15% of your credit score. it shows that not only can you handle credit responsibly, but you have a long history of it. That's why you hear people saying that you always [00:08:00] want to keep your oldest credit card open.
 
If it closes, then it can negatively affect your credit score. And then the last one I wanna talk about is your credit mix and new credit. Together. These account for 20% of your credit score.
 
Lenders like to see that you have a mix of different loans and credit cards, but if you're showing a bunch of new credit on your report within a short amount of time, that's going to send a negative signal. It's gonna show that you may be in financial distress and therefore unable to pay your bills.
 
That's why you really need to pace yourself when it comes to new credit card applications and why if you're buying a house, you don't wanna open up any new credit cards or make any big purchases like a car. so how do you check your credit score and how do you know what your [00:09:00] credit utilization is and all the other factors that we've discussed?
 
Well, it is pretty simple to check your credit score and have it not hurt your credit. You can sign up for apps like Credit Karma or the one that I use the most is Experian Boost. These apps are great tools for monitoring your score without impacting it. I've learned so much from having this information and it's really helped me build my credit score to where it is today.
 
But isn't having a lot of credit cards bad? Well, not necessarily. In fact, most people in the Points of Miles world have 5, 10, 20, even 40 credit cards, and guess what? They have excellent credit scores. And the key is having a system that works for you.
 
Don't start with 10 cards. Don't feel that you have to be overwhelmed [00:10:00] by the fact that you may have to manage so many cards because you don't. If you don't want to start with one, see how you can manage that, and if it's not for you, that's okay. No harm done. But one thing you don't wanna do is panic and then start canceling cards right away.
 
That can actually hurt your credit score more than it can help it. So we'll go over how to manage a credit card portfolio in another episode. look, I've never met anyone who has played this game of points of Miles responsibly. And has bad credit. If anything, we all tend to have great credit because we track our spending.
 
We pay our statement balance in full on time every month, and we use our cards strategically. now that you know how your credit score works, you're in a better [00:11:00] position to start applying for travel credit cards the right way.
 
But we'll save the application rules and strategies for another episode. 

So here's what I want you to remember. Tracking your credit score doesn't hurt it. A score over 700 is a great place to be. You don't need a perfect score. Just a solid one. Improving your credit takes time, but it's totally doable and credit cards don't have to be scary if you use them wisely.
 
I hope you found this episode helpful and that you feel more confident about how your credit score works. And why it matters. My dream is for every listener of this podcast to get into the habit of checking and understanding their credit score. It's one of the simplest steps you can take toward financial literacy and smarter travel.
 
As always, keep it simple, keep it fun, and keep exploring. Make sure to [00:12:00] subscribe and I'll see you in the next episode.