Credit cards represent the easiest way to earn miles and points, but can be extremely intimidating if you’re just getting started.  Before starting our miles binge, Mrs. Selfish and I were extremely concerned about anything that could affect our credit – it didn’t help that we didn’t really understand how it worked either.

First a Disclaimer: If you cannot pay your bills in full every month STOP READING NOW.  This game is not for you.  If you fall behind on your payments, you’ll owe way more than the miles or points are worth.

How your Credit Works

Your credit score is determined by 5 main factors:

1. Payment History (35%): whether or not you pay on time.
2. Credit Utilization (30%): how much of your credit are you using. A giant red flag for CC companies is too much credit utilization, which may work on a card per card basis.  For instance, putting a charge of $500 on a card with a $1000 limit will raise some flags, while putting $500 on a card with a $5000 limit will not.
3. Length of Credit History (15%): how old are your accounts?  Many of us have one or two cards that are 10+ years in age, which help establish good credit.
4. Types of Credit (10%): mortgages, car loans, student loans, credit cards.  I have no idea why having all of these would be perceived as a good thing, but if it helps raise your credit score, so be it!
5. New Accounts (10%): opening a new account results in a small drop due to the credit inquiry.

When opening new credit lines a few things happen.  First, the average age of your accounts decreases.  Second, the credit agency affiliated with the credit card company performs a hard pull on your credit, which reduces your credit score by somewhere between 2-5 points.  Third, the amount of credit you have access to increases, which raises your score over time by decreasing your utilization.

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