For many years, I've been working on earning a good credit score. I’ve paid all my bills on time, which is key for getting good credit. But I've also taken some extra steps, such as qualifying for and quickly paying off a car loan and asking for credit line increases every chance I could get.
All of my hard work has paid off, and my credit score is now 825. But my great score is probably going to fall soon -- and that's OK by me. Here's why.
Here's why my credit score is going to take a hit
My credit score is likely to suffer in the coming months because I plan to apply for several new credit cards.
Many card issuers are offering more generous sign-up bonuses right now, and some are even waiving annual fees in a bid to attract qualified customers during the coronavirus pandemic. My good credit should qualify me for several cards with great offers. But when I apply for a bunch of new credit at once, my score will take a hit, because I'll be reducing my average account age and getting a number of new inquiries on my credit report.
Creditors may also report higher utilization ratios for me because I need to spend on these new cards to earn the generous sign-up bonuses they offer. And this could hurt my score further. I'll be paying off the balance on my cards in full every month (otherwise, the interest costs would dwarf any rewards I receive), but depending on when the card issuers report to the credit bureaus, my credit history may still show that I owe money.
Here's why I don't care that my credit score is going to suffer
Most of the potential damage I'm going to do to my score is short-term. The inquiries I get for applying for a new card will drop off my credit report within two years, and my new accounts will eventually become old ones. And as my balances are paid off, my credit utilization ratio will improve.
But the bottom line is, I can afford to take this hit to my credit score because my score is already so high. The reality is that no one needs an 825 credit score to qualify for the most competitive rates or the best loan terms. Any FICO® Score above 800 is considered excellent, while 740 or above is a very good score that can help you get almost any loan or credit card you want.
A very good or excellent credit score is definitely worth aspiring to. But the reason to earn such a high score is that doing so opens up doors for you financially. Having a high score by itself may give you bragging rights, but it's most beneficial if it lets you use your money wisely. And for me, right now, using my excellent credit as a tool to unlock awesome credit card offers seems like a good tradeoff.
Of course, if you're about to apply for a big loan, such as a mortgage or car loan, you definitely wouldn't want to do anything to cause your credit score to take even a minor hit. Doing so could be very costly if you end up raising your interest rate even slightly when you're borrowing a lot of money over the long-term. But since I have no plans to do either any time soon, now's a good time for me to put my credit score to use.
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