Ready to begin applying for new credit cards to earn major points? Before you apply, be sure you understand the basics behind credit scores, how they are calculated and how they affect how often and how many cards you should apply for. We’ll also discuss how anyone can apply for and get business credit cards as a sole proprietor.
Credit Scores
Maintaining a high credit score is a key factor that lenders will review when you try to acquire any type of credit (credit card, car loan, mortgage, line of credit etc.) The 2 major Canadian credit bureaus, Transunion and Equifax, don’t publish the actual formulas they use to calculate your credit score. And your credit score is only one of the factors that lenders use to determine if they’ll grant you credit (each lender has different criteria.)
What we do know is that your credit score and report is the first impression a lender will get about you via a hard credit check, so we can only focus on the initial score and report as reported by Equifax and Transunion. While we don’t know the exact formula, it is generally accepted that your credit score is based on the following criteria:
Payment History: 35% of your score
This is pretty self explanatory…if you’re not paying your bills on time it will hurt your credit score. Your credit report will show bill payment information for the last four years. Late payment two years ago? Any lender will see that immediately. Pay your bills in full and on time every month to raise your score and increase your chances of getting better cards and better rewards.
Amounts Owed and Utilization: 30% of your score
Lenders want to make sure you are responsible enough to take on new lines of credit. If you have two cards, each with a $5000 limit and you carry a $9500 balance between the two each month, that doesn’t look good as you’re utilizing 95% of your available credit. It is generally recommended to keep your utilization below 30% of available credit. We keep ours below 10%. Your credit report will show the date that lenders are reporting your balance to the bureau. If you’re using a large proportion of your credit, don’t wait for your credit card statement to post. You can see your balance at all times, pay it before the lender reports so they are reporting a lower utilization.
Length of Credit History and Average Age of Accounts(AAoA): 15% of your credit score
Lenders like to see that you have some history behind you. AAoA is calculated by taking the length of time you’ve held each of your lines of credit and averaging them. Basically, if you have one credit card that is 5 years old, and two cards that are a year old your AAoA would be 2.33 (7 years of card history divided by the amount of cards). The take-away here is that you should think very hard about cancelling a credit card that you’ve held for a long time. If you want to move on from your oldest card because it has an annual fee, switch it to a different no fee card with that same lender. The only cards you should cancel are high annual fee cards that you acquired for a welcome bonus.
New Credit Applications: 10% of your score:
When applying for new credit, the lender will perform what is called a ‘hard credit inquiry”, which shows on your credit report. Having a lot of hard checks may lower your score as lenders might perceive a lot of applications in a short time as a risk. Yes, a ‘hard inquiry’ will drop your credit score a bit but if you maintain excellent reporting with the first two items on this list, it will far outweigh your credit checks. The downside is they can stay on your credit report for up to three years
Credit Types: 10% of your score:
The least important of all your credit score factors. This lets lenders know how you handle money overall. Consolidation Loans for instance would let them know that you have a history of not being able to pay your bills
The bottom line for this is pretty simple. Pay your bills in full and on time every month. Be patient and allow your AAoA to build and keep your utilization low. In time your score will build rapidly.
Frequency and Number of Applications
Angela and I have been quite aggressive as beginners to credit card churning, but I would not suggest anybody starting out to do what we do. For most in this hobby, this is absolutely a marathon, not a sprint. Take it slow and build up gradually. The more time you spend in the game these answers will come to you. There is no hard set rule on how many cards to apply for at one time.
I suggest most people do their research and find one card that they find value in and start there. Apply for it, make sure you can meet your minimum spending requirement and get your welcome and/or signup bonus. Once you are more comfortable with the process you can begin looking at expanding into applying for multiple cards at once. One benefit of applying for multiple cards at a time is that if they are all with the same lender you can avoid multiple hard credit checks. In some instances they will reuse a single hard hit for multiple applications. This won’t always work when applying for both personal and business cards at the same time.
I suggest waiting at least three months in between applications for different cards as many lenders will not approve multiple applications within a 90 day period. The only exception to this is applying for multiple cards on the same day as discussed above. Once you’re comfortable within the game, if there are multiple cards with the same lender that you are eyeing you should do the applications within a matter of minutes of each other. Almost every lender out there will give you an answer on personal cards within 60 seconds if applying online. Business cards are never instant approval online. These will always be reviewed in house.
Business Credit Cards
Obviously, the easiest way to get business credit cards is to own your own business. Luckily for us AmEx Canada will also approve business applications to sole proprietors with absolutely no documentation. When you reach the business details section on the application there will be a drop down menu asking for your role/title in the business, choose “proprietor” here.
You will need to choose a business name that appears on the card alongside your own name. This can be whatever you want, but I use my full legal name as my business name so that my credit/charge cards always match my passport and therefore boarding passes for lounge entry. The application will ask for your personal as well as your business income. List personal income in both fields.
Business cards will never get instant approval on AmEx’s website. You’ll always get the obligatory “we cannot approve your application at this time. We will give you an answer within 10-14 days”. If this happens and you are impatient, there is always a phone number to call when you submit the application. Simply call and you’ll usually get an answer on the spot. Congratulations, you may now be the proud owner of a new business card with great rewards earning potential!
Previously: A Multitude of Programs
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