A travel hacker’s best weapon is their credit score and credit card arsenal. Contrary to popular belief, not all credit cards are bad. Sure, some are, but if you know which ones to sign up for they can be of great benefit to your travels. Credit cards have helped me fly to Asia to begin this trip, fly my first business class flight, get free hotel rooms, get me into swanky airport lounges, and have plenty of more free travel lined up for the rest of 2016 and 2017.
Your Credit Score
As I mentioned in my previous post, signing up for multiple credit cards doesn’t always hurt your credit score and in some ways can improve it. The more accounts you have the better; however, as a young adult with little credit history, signing up for multiple cards often leads to damaging effects. One of the most important metrics used to calculate your credit score is your average age of accounts. The age of all your accounts is added up and divided by the number of accounts on your report.
A Basic Example : Joe has three credit cards on his credit report. Card A is 24 months old, Card B is 12 months old, and Card C is 3 months old. His average age of accounts is 13 months old, which according to Credit Karma would be rated as Poor. Furthermore, if he were to sign up for 1 more card it would drop him into the Very Poor range, which could severely limit his ability to take advantage of some of the most lucrative offers.
Normally building an average age takes time. You have to be patient and slowly build up your credit. No annual fee cards are great to have since you can keep them forever, which will continue to increase your average age and not cost you any money. These will help to offset some of the cards that may have very lucrative sign up bonuses, but are not worth keeping after the 1st year.
What if I told you you could almost overnight drastically increase your credit score, without signing up for a card yourself? The good news is you can and it’s very easy! In many cases the issuing company won’t even register a hard pull ( a credit inquiry ) on your account, saving you a 1-2 point hit on your credit score when you normally sign up for a card.
How do you do this you ask? Well… *drumroll please*… BECOME AN AUTHORIZED USER!
An authorized user (AU) is exactly that, a person who is authorized to make purchases on someone else’s account. This person would have their own credit card with their name on it, have the same card benefits as the account holder, but wouldn’t be the person the account is listed under. Authorized users are commonly spouses or family members of the primary account holders, but it can really be anyone you trust. You don’t want to be giving this kind of power to just anybody.
How does this help me improve my credit score?
When someone is made an AU, the entire credit history of that account is added to the new user’s credit report. An account open for 10 years would show up on your credit report as being 10 years old, even if you just became an AU yesterday. Pretty awesome right?
The hardest part is finding someone with a long history of good/great credit who is willing to make you an AU on their account. You don’t want to become an AU on an account with multiple late payments since that will only make things worse for your score. Parents are a natural first choice since their credit will be much longer than someone who is still new to personal finance, but they may be unwilling to give you that much power over their accounts. One way to persuade them is to ask to be an AU, and give them the card to hold on to. That way you can still benefit from the average age increase, but can’t do any harm to their credit history by racking up unnecessary charges on your new piece of plastic.
I’ve used this trick a couple times now and it has helped me keep my credit score at a solid 819, which is considered near perfect. Thanks to the 33 year old outlier on my list of accounts, I have a sizable average age, which gives me enough leeway to sign up for multiple cards and keep my score high. Of course, average age is just one factor that determines your credit. You still need to pay on time, keep a low balance, and avoid derogatory marks on your report in order to keep your score high. This trick isn’t a cure all, but it can help give you the jumpstart you need to a successful credit score, which is crucial to becoming a good travel hacker.
If you have any questions feel free to ask!
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