Credit card strategy

by Karl
Updated: July 9, 2018

This is my personal credit card strategy for achieving an optimal credit score all the time

Good practices over the years mean my credit score is now always high, even though I sometimes charge a lot on my cards. The procedures I use put me in full control of my credit score and maximize my freedom.

This article refers to credit cards because they are my preferred type of credit account.

Ingredients

You can have more, but the minimum required to make this work properly is three cards:

  1. A normal credit card
  2. A second credit card that closes 15 days later (approximately) than the first card
  3. A business credit card

I prefer cards that pay rewards and I only have cards that don’t charge a fee.

Some rewards cards, even though they charge an annual fee, can seem very attractive based on your usage at the time you get them. The problem is that you are then committed to a minimum spend on that card in perpetuity and your circumstances could change. You can cancel them of course, but this works against building a high credit score in the longer term.

The business card

I put all my regular payments on a business rewards card and keep it in a safe place. I never take it out with me or put it in a situation where it might get lost.

When a card is lost, the replacement will have a new number and it’s a pain to have to update all the accounts.

By “business” credit card, I mean one that is NOT reported to the credit bureaus. This way, I can allow the statement to close with a balance and not be concerned about it affecting my credit score.

Putting this card on autopay means all my bills are paid without me having to do anything except maintain a minimum balance in my bank account.

Day-to-day usage

Suppose I make purchases on card #1 at the beginning of its billing cycle. The billing cycle of card #2 starts about 15 days later so I then switch to using card #2. This gives me the following benefits:

Time: It maximizes the amount of time before I have to actually pay for anything.

For example, making purchases at beginning of month on card #1 which closes at the end of the month and is payable three weeks later, gives me seven weeks before I have to part with the cash. Purchases made just before mid month cuts that down to five weeks but then switching to card #2 on a similar basis gives me a full seven weeks again.

This is particularly useful when I have to wait several weeks for expenses to be reimbursed.

Safety: Because I have more than one card, if I lose the one I took out with me, I still have another at home.

Of course, I have several cards and I sometimes take more than one out with me (some give better rewards for certain types of purchase). But I always leave the others at home.

I always know where all my cards are and I have a separate note of what to do if any of them get lost or stolen.

Control: Because I stop using a card well before the end of its billing cycle, I can be sure that all charges have been processed in plenty of time for me to pay down the balance before the statement is issued, if that’s what I want to do.

Although I’m not maximizing payment delay by doing this, it gives me precise control over my credit utilization.

I maintain spreadsheets to log my spending so I have something to cross-check against what I see in my account online.

Autopay

Some years ago, lenders removed autopay from a lot of accounts. I received letters saying, “In order to serve our customers better, we a removing this service.” Call me cynical, but it seemed to me like an attempt to get fees out of people who used to rely on autopay and were not in the habit of remembering to pay manually.

At the time of writing, most lenders do now offer autopay but I don’t rely on it anymore. I have it set up to pay the minimum as a safety measure but in many cases the only option is payment on the due date which means the account would become past due if the payment didn’t process for some reason. I choose not to risk it.

Long-term strategy

Never a late payment. Ever.

Never share credit accounts: I’m not an additional card holder on anyone else’s account and no-one is an additional card holder on any of mine.

Ten cards is enough. I originally added about one per year.

Not all my credit cards are reward cards as such. Store cards that give an in-store discount, travel cards that have zero foreign currency fees and balance transfer cards all have their merits. The important thing is that I only open accounts I intend to keep & maintain and that don’t charge a fee.

Avoid flexible spending credit cards: If you have a high credit score you can qualify for this type of account (I got one without even realizing). Instead of a credit limit they have a max-balance-carried-forward limit and you can charge as much as you like. It sounds great but in practice the current balance is used in place of a credit limit which means your card is always technically maxed out (unless it’s zero) and this hurts your score.

Ask for credit line increases. I’m not sure if it’s necessary - I’ve been given most increases on cards I wasn’t using, without asking - but it seems like good policy:

The few times I’ve done this, I then ran the card close to its credit limit at the beginning of its billing cycle and then stopped using it before asking for an increase. I made sure my income was updated in my account and then asked for the increase over the phone.

I monitor my credit and log-in to my online accounts frequently.

I update my income annually and whenever requested (presumably lenders want to see that it’s commensurate with my credit limits).

Credit limits

I have a credit card with a relatively low limit which I used for transactions where I think there might be an increased risk of fraud. The advantage of such a card is that, if it gets used fraudulently, everyone’s liability is kept down.

Other than that, the general rule is the higher the better because it means any balances will represent a lower utilization, e.g. $600 on a card with $1,000 limit is 60% whereas $600 on a card with a limit of $30,000 is only 2%.

More info

“How to Tell If You Need a New Rewards Card Strategy” article at wisebread.com.

“What’s Your Credit Card Rewards Strategy?” forum posts (since 2010) at bogleheads.org.

“The foolish strategies people often use to pay back credit card debt” at qz.com.

Internal links

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