Check Yourself

Credit score : a numerical expression based on a level analysis of a person’s credit files, to represent the creditworthiness of that person. A credit score is primarily based on credit report information secured from credit bureaus.

The Fair Isaac Corporation (FICO) issues credit scores which range from 300 to 850.  There are 3 big credit bureaus in the United States, Trans Union, Experian, & Equifax,  and you will usually have 1 score from each of them.  Your personal income is not considered when calculating a credit score.

According to the FICO webpage, your credit score is based on these factors:

  • 35% payment history
  • 30% amounts owed
  • 15% length of credit history
  • 10% new credit (inquiries)
  • 10% types of credit used

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You are entitled to one free credit report per year from each credit bureau, but this will not include your credit score.  You can purchase it as an add-on to your credit report for a fee.  (around $10) Or you can sign up for a credit monitoring service such as Credit Karma. The score you will see on Credit Karma is sometimes called a FAKO score.  A FAKO score is any credit score that is not an official FICO score.  The FAKO scores can still be useful in getting a general idea of your score without paying for a FICO report.  But, in my experience, they are usually lower than your actual FICO credit score.

The #1 question people ask me when I tell them about my “little hobby” is “Won’t applying for all those cards hurt your credit score?”  The simple answer is “No”.  The complicated answer is that it will hit your credit in the short term, with each inquiry lowering your score by a point or two.  But in the long term, your score will go up because your debt to credit ratio will go up.

As an example, when I did a big churn in May 2013, my FAKO score (via Credit Karma) was 781.  When I did my churn in Sept 2013, my FAKO score (via Credit Karma) was 769.  A 12 point drop from that big churn! But when I checked it today to write this article, it was 773.  So I’m very close to where I was 10 months ago and I’m sure within the next 6 months, it will be back to 781 or higher.   Incidentally, my official FICO credit score is 816.

I would not recommend getting into this hobby if your FAKO score is not above 725 and definitely not if it is below 700.  I also don’t recommend this if you can’t pay off your balances in full EVERY MONTH.  Paying ridiculous interest every month kind of defeats the purpose of getting the card.  Do not apply for multiple credit cards if you can’t control yourself! I can’t think of a nice way to say it…seriously…if you are going to be tempted by thousands of dollars of open credit, don’t do this!  The available credit from all of my open accounts is around $250,000! Oh the shoes I could buy! But, I am only utilizing 2% of that credit, which is why I have an excellent credit score.  I also pay my bills in full each month and have never had a late payment.  So it is possible to take 10 or more hits on your credit report each year and still maintain an excellent credit score. (Remember I am a very conservative churner. Some people take 20 or more hits a year, but their scores are usually around 750)

One final word about credit scores.  If you are planning to buy a new house in the next year or 2 you should not start this.  Wait until you close on your house.  You will get a much better interest rate on your mortgage loan, and that is, by far, your most important debt.

If you have any questions, please feel free to leave a comment below or e-mail me!

2 thoughts on “Check Yourself

    • A HELOC is a line of credit, yet still a sort of mortgage. I doubt that opening a couple cards would affect that type of loan as much as a regular mortgage. The first thing to do is check your FICO score. If it’s at least above 750 you should be ok. I’m not qualified to give financial advice though. 🙂 This is just my opinion. Talk to your mortgage lender. Even when I was in Real Estate, I referred all financial questions to the financial experts. Curious though..Is a HELOC the best way to buy rental property? Adjustable rates?
      Thanks for your comment and thanks for reading!

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