It seems most travel blogs include a post about how great the author’s credit is and how important it is to maintain that. And then some other posts about how their score may “dip” from say the high 700s to the mid 700s briefly after applying for a bunch of cards. While I wholeheartedly support the view that maintaining your good credit is hugely important, the simple fact is the majority of the population has some kind of issue with their credit report. According to CreditKarma, 38.6% of the population has a credit score above 700. So this post is aimed at the rest of us 61.4% who sit below the halo line.
The Fair-Isaac credit scoring system runs from 300 to 850 points. When I moved from the UK in the mid 2000’s, I was used to the UK credit scoring system which capped out at 1,000 points. The last time I checked before leaving I was somewhere around 995, a near perfect score. So it was of course quite shocking to come here and basically have no credit history whatsoever. It felt like being an 18 year old kid again, but without all the fun. Amex was my one saving grace as they were willing to open lines of credit off of my UK history and they even reported them as being open from the time my first UK accounts were opened, so I got a little credit for that. Anyway over the next couple of years I managed to build a reasonable score, though my average account age was obviously not long. I monitored my credit quite regularly – I used (and continue to use to this day) Transunion as I like the reporting format (and I am one of those people willing to pay for these subscription services). So I regularly saw my score creeping up and up as I was able to add car loans, car leases, mortgage etc. Then one day I get an email alert that something had changed and I was not expecting anything. I logged in and was stunned to find a “Judgement” recorded on my account by Albany County Court. A true WTF moment! After some panic and then looking it all up, it turns out I owed NY State a pretty small amount of interest from a prior year tax return, and they had put it out for judgement. Literally overnight my score dropped through the floor and I figured the whole credit game was over for me. I quickly paid the outstanding amount with NY State but knew this thing would stick on my report for a long time. Indeed my score has never really recovered properly, as you can see from this chart of my score history:
Not terrible, but not great either and certainly not in the 700+ range that everyone assumes you need to be to make the most of the credit card opportunities.
My biggest concern was not travel cards but my ability to finance major purchases such as cars and homes. Well it turns out it was not at all ruinous on this front. We refinanced our mortgage in 2010, a pretty large mortgage I must confess, and we got a highly competitive rate. I did have to explain to them what happened, and produce the papers showing the judgement was paid. In fact I recall the discussion with the mortgage officer at the bank and he said that he deals with judgements all the time, mostly for medical bills. Maybe he was being nice to me but he said at least a third of the people he reviews have medical judgements, where you got service from some hospital and there was an unpaid amount and they just ship it out to some collection agency. I have friends who have similar issues with maybe an old cell phone bill.
I have also since been able to finance car loans at 1.49% (pretty much the best rate in the market) as well as refinance the mortgage again at market leading rates, so the plain fact is you can survive having a big scar on your credit.
Now in terms of credit cards, what it has meant primarily for the past few years is no more instant approvals. I virtually always get turned down at time of application. As such I have become quite “expert” at reaching out to the credit reconsideration departments of the various card issuers. I will post some follow ups on each of the “big three” banks that I have dealt with (Citi, Chase and Amex) has each has it’s own unique quirks in terms of getting through to someone who will actually listen to your story. But it is ultimately possible and you can get past prior credit transgressions.
Whenever I suggest to someone they get into the credit card game, the first question is always “doesn’t that ruin your credit?”. I always answer pretty firmly “no”. In fact the interesting thing I have found is that now I have gone through so many cards recently with the big players, I am actually back in the game of getting instant approvals. In fact on my last app-o-rama I fully planned a post about Amex in particular, who have a particularly odd but effective reconsideration department… but then I actually ended up getting approved without having to go through all that.
The one impact of all the app-o-rama and churning is that my average account age is still very low:
So CreditKarma gives me a pretty poor score on this front. But I am still able to get pretty much any credit card I want and have not had any issues getting the best possible rates on major financing such as mortgages and auto loan and leases.
I think the gist of my message here is if your credit is less than perfect then you should not be deterred from playing this game. I certainly advocate protecting your credit and making sure you don’t let these things happen to you, but if you have past digressions don’t worry about it, these are things that can be overcome. And I certainly have found that the impact of getting 5 or 6 new cards every single quarter has really not been bad at all. So go on, be brave!!!