The Basic Principles
- Take advantage of cards with promo bonuses and no annual fee
- Pay off loans as late as possible but before being charged interest
- Automate everything
I see four categories of credit card habits:
Making late payments (failing to pay the monthly minimum). Big fees and damage to your credit score.
Paying the minimum, but keeping a balance that is subject to a high APR (20%+).
Paying your balance in full every month. Avoid balance transfer fees and cash advances.
Exploiting different credit cards and promo bonuses to get rewards and build your credit score.
Although credit cards are for spending money, if you understand them, you can save quite a lot of money as well.
1. Take Full Advantage of Promo Bonuses
Many cards with no annual fee give you ~$110 cash back for spending $500-$1000 within the first 3 months. Once you get the bonus, leave the card open to extend your credit limit and history, increasing your credit score in the long run. Never close these cards!
2. Take Full Advantage of 0% Interest
Most credit cards charge no interest for 12-15 months. Pay the minimum each month during this period, and you will have more money in your account The advantage of this over paying the full balance every month is that you have more cash in your account earning interest.
3. Open Credit Cards as Early as Plausible
A credit application will:
Whether Approved or Not
- Lower your credit score since this counts as a “hard inquiry”. Your credit score rebounds from this after a few months.
- Lower your credit score by reducing the average age of your credit history if you are approved
+ Increase your credit score by increasing your number of credit lines and credit limit.
To maximize your credit score, open cards with promo bonuses as soon as you have a good chance of getting approved for them. This gives your credit history more time to age, and more time for the impact of a credit inquiry to fade. You can start applying for rewards cards when your credit score is in the 700s.
My Credit History
17 years old
My first card was the Chase Slate. There were many Chase ATMs and banks in my area, and I had a checking account with them, so this was out of convenience.
18 years old
Second card- Chase Freedom. It had better bonuses back then, and I used it for four years, never keeping a balance. By the end of college, my credit score had increased dramatically.
22 years old
I had a stable income, responsible spending habits and a high credit score. I had no intentions to apply for loans in the next year, so I could afford a temporary drop in my credit score. I applied for ten credit cards, and was only approved for three- the Chase Sapphire, Capital One VentureOne, and Capital One QuickSilver. I stopped using them as soon as I earned enough to get the promo bonuses, a total of $337.50 for spending $2000. Ten new hard inquiries, a reduction of the average age of my credit history to < 1 year, and paying minimum on a $2000 balance reduced my credit score to 700.
23 years old
The impact of a hard inquiry only lasts a few months. Within a year, I paid off my balances and my credit score was higher than it was before. I applied for the Barclay’s Arrival World card with the $89 annual fee and was approved. It has the best rewards and no foreign transaction fee, so it is the only card I use. I use my older cards once a year to ensure that the banks do not close them due to inactivity.
Looking Back: What I Would Have Done Differently
When I was 22 I was spending $1000 a month, enough for a promo bonus every month.. But with each application, my chances of getting approved for another card decreased. Had I been approved for more cards, my credit score would be much higher now due to the older age and larger credit limits. I could have reduced the number of times I was rejected by
1. Applying for each credit card on the same day, before each inquiry was reported to the credit agencies
2. Lying on my applications, over-reporting my income and savings.
3. Not applying to credit cards when my credit score decreased from too many hard inquiries.
I didn’t do #1 because I was complacent. I didn’t do #2 because I was scared of getting caught. I didn’t do #3 because I could afford to damage my credit score temporarily. Even a ridiculous number of inquiries (10 is ridiculous) would fade completely after a few months.
Credit Cards With No Annual Fees && Promo Bonuses && Limited Time 0% Interest
Barclay’s Rewards MasterCard (for credit <700)
There are a ton of them out there, and the offers are always changing.
Clever credit card tricks don't require much time or discipline thanks to automation. If you choose not to spend a few minutes doing this, you will lose out on several hundred dollars a year. Even worse, your credit score will not be as high as it could. The earlier you act the more you can improve your credit score, but be sure you'll be able to pay down your balance right before the 0% APR period ends.