Guide to credit cards

A great way to get a deal on a cruise is through credit card reward points. Before I get into posting recommendations on credit cards, I thought it was important to first post a highlight of what to keep in mind when applying for cards and using points.

Disclaimer
It is important to keep in mind that this method should only be used if you have good credit and can afford to pay off your bill every month. If you do not pay off your bill monthly the interest and penalties will very quickly eliminate, and likely eclipse, any benefits discussed here.

Additionally opening too many new lines of credit will not reflect well on a bank if you are applying for a mortgage, so I suggest avoiding this if you plan on buying a home within the next 2 years.

Restriction rules
Although there is no legal limit on how many cards you can have or open, many banks have their own restrictions. Please keep these in mind when applying, as the last thing you want is to have a hard hit on your credit report without the benefit of a new card.

AMEX

• AMEX will only allow you to have 5 of their credit cards at any given time. Should you wish to apply for a 6th card you will be asked which card you want to close prior to approval.
• AMEX additionally only allows a sign up bonus once per lifetime. Upon applying for a card which you are ineligible to receive a bonus on, their system will prompt you to acknowledge you are signing up without a bonus prior to submitting.  Some people claim they have received a sign up bonus 6-7 years later, however this appears to be the exception and not the rule.

Bank of America

• 2/3/4 rule - Bank of America will only approve you for their cards 2 every 2 months, 3 every 12 months and 4 every 24 months. They do not factor in other cards at other institutions.

Barcalys

• 6/24 rule- Barclays will not approve you for a credit card if your credit report shows you have opened 6 credit cards in the last 24 months. Keep in mind that most business cards do not show on your credit report and therefore are excluded from this rule. This rule is not strictly enforced and can be overturned by requesting a reconsideration.

Capital one

• Capital One will only approve one card per 6 months, but does not consider other institutions cards in this rule.

Chase

• 5/24 rule - Chase will not approve you for a credit card if your credit report shows you have opened 5 credit cards in the last 24 months. Keep in mind that most business cards do not show on your credit report and therefore are excluded from this rule (including Chase business cards). Therefore ensure you open business cards before Chase cards, and other cards after Chase cards.
• 2/30 rule - Chase will not approve you for a credit card if you have opened 2 Chase credit cards in the previous 30 days. This does include business cards, but does not include non-Chase cards.
• Most cards allow you to receive a bonus once every 24 months as long as you do not currently have that same card. Sapphire however allows bonus once every 48 months, and you cannot have either card when you apply. 

Citi

• Citi will not approve a personal card if you have been approved for a card in the previous 8 days or 2 cards in the previous 2 months. Business cards are limited to 1 card every 3 months.

Card utilization

For both credit purposes and bank purposes its best to make sure all cards you have are used regularly, at least every 6 months. This shows on your credit report that this card is active and used. 

In addition it stops flags from the banks that the card is inactive which may result in them closing the cards, hurting both your credit age and credit utilization. Therefore I recommend twice a year using all cards. Set yourself a reminder that on March 1 and September 1 every year you need to buy yourself a $5 Amazon gift card with each card. This will keep your cards active and helping you. In addition most affiliate cards like Marriott or IHG have points expire due to inactivity, this method ensures your points never expire.

Business cards

I highly recommend if you are able to, to open a business card instead of a personal card. This is beneficial for several reasons.

Firstly, with the exception of Capital One and Discover, business cards do not show on you credit report. This helps when you factor in Chase's 5/24 rule, as they will not count business cards toward this. Additionally your spend does not show on your credit report and therefore does not count toward your credit utilization rate on your credit score (more on that later).

Secondly, business sign up bonuses often tend to be higher than personal. This is obviously not always the case so make sure you do your research and make sure you are getting the most bang for your buck.

Keep in mind that you do not need to have a business to be eligible for a business credit card. You may apply for them as a "sole proprietor" and use your social security number as the business ID, and your name as the business name. You can qualify for this for a variety of reason, such as selling stuff on eBay or using your house on Airbnb.

Credit score

Payment history - 35% - As long as you always pay your bills on time, this is an easy section to boost your score.

Credit utilization - 30% - This measures how much of your available credit you are actually using. Paying off your credit card before it comes due (leave a small amount so it shows the account is active) will boost this section. Spending on a business card, will increase this section as it will not show your balance

Age of credit - 15% - This tracks the average age of all your accounts. The longer the history of your accounts the better. Closed accounts will not fall off your credit report until 10 years after they are closed.

Credit inquiries - 10% - This factor considers how many hard credit inquiries there have been on your credit report. Often times these fall off after 2 years, so having a number of hits at once will only impact our credit temporarily.

Credit types - 10% - This factor reviews the types of credit you have, such as credit cards, mortgage, auto, etc.

Closing a card

When closing a card, the biggest impact is to your credit utilization. This amount is no longer factored in when calculated the amount of available credit, however this can be counteracted by opening a new card. In addition the age of the credit will remain for 10 years, which will help that part of the ratio.

Unless a bank, such as AMEX, requests you close a card, you are probably better off just keeping the card and not using it.

If the annual fee is the reason you wish to cancel the card, I suggest downgrading to a free version rather than a paid version. Not all cards have a free version but most do. By downgrading your benefits might not be as good, but your credit is not impacted, as our age and credit line will remain unchanged.

If you must cancel a card, make sure the card is at least a year old, preferably more than 2 years old. Closing a card sooner than 2 years may cause a red flag with the banks, and doing so regularly could hurt your chances of getting approved for additional cards in the future.