It took 14 long years and many false hopes, but I finally broke 800 on my credit score back in September, 2013! It’s 2019 now and my 800+ credit score has remained steady above 800.

The last time I checked my credit score before 9/2013 was when I refinanced by primary home mortgage in the spring of 2012 before I left my job of 11 years. My Equifax credit score actually came back at a dismal 697 because there was a late $8 electricity bill charge my tenants did not pay from three years ago. As a result, my bank said they would not go through with my refinance after I had waited for 80+ days already.

_{Disclosure: Financial Samurai has partnered with CardRatings for our coverage of credit card products. Financial Samurai and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.}

Catch & Fix Errors ASAP

I was able to fix my credit score in 10 days after I told my local utility company to write a “clear credit letter” to my bank. My credit score thankfully jumped back to 797 within three months and my refinance was complete.

What is scary about the whole thing is that I had successfully refinanced another property in 2010 with no signs of an impending hit due to the $8 late payment. This is why I urge you to check your credit score once a year to make sure there are no errors, especially if you are planning to refinance or take out a significant loan.

My latest credit score check came due to my application for the Chase Sapphire Preferred credit card I plan to use for all my travel related expenses. I’m on a 10+ weeks a year travel mission from now on and it just makes sense to sign up for a card that provide bonus miles and points for every dollar spent. So it was with great surprise through the application process that my credit score is now 805.

In this article I’d like to highlight the main attributes of determining one’s credit score and my thoughts on how I was able to finally break 800. Hopefully this post will give you helpful first person insight.

Here are today’s best rewards credit cards. They have the highest cash back percentages and the highest sign-up bonuses.

I believe the ideal number of credit cards is three or less as stated in my post, “How Many Credit Cards Is Too Many?” One of the main reasons for having three or less is so that you don’t spend too much time chasing after rewards points. Once in a while is fine, but there is a law of diminishing returns.

If you’re spending time applying for new credit cards, reading about new credit cards, keeping tracking of all your credit cards, and canceling your credit cards, then you are taking away time from making more money elsewhere. Your mind focuses on the small picture when it should instead be focused on the big picture. Furthermore, unless you are an organizational machine, you will undoubtedly miss a payment or forget to cancel your card before the introductory period is due thereby negating some of the initial sign up benefits.

Everybody should have at least one credit card for convenience sake. Many credit cards have travel insurance which comes in handy when you lose your luggage in a strange land and need a place to stay. Credit cards help build credit which is important for individuals looking to buy a home or apply for a coveted job. Buyers protection is also a great reason to have a credit card just in case you want to dispute a vendor.

_{Disclosure: Financial Samurai has partnered with CardRatings for our coverage of credit card products. Financial Samurai and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.}

The Irrationality Of Personal Finance

Given personal finance is pretty straight forward, I’m always curious to understand the kinks in rational reasoning:

Why do people get into so much consumer debt if they don’t want to work forever?

Why not just try harder to get ahead?

Why do people believe they deserve an “A” lifestyle if they were a “C” student?

Why not join a more lucrative field of work if you want to make more money?

Why freeze for six months a year when you can be warm all year round?

Why quit your job when you can get laid off with health insurance, severance, and unemployment insurance?

Why contribute to a ROTH IRA when the government mismanages our money?

The list of kinks go on and on and I find every single one of them to be fascinating! We all know what we should be doing, yet so many times we can’t be bothered. I’ve written about my own paradoxes by purposefully playing devil’s advocate in order to find clarity e.g. The Dark Side Of Early Retirement. What kind of dummy leaves a multiple six figure job anyway? Ridiculous!

With credit cards, I’ve received a lot of push back from the community on why three credit cards is too little and why we should all be signing up for as many credit cards as possible since it’s free money. One fellow blogger retorted on Twitter,

You have a lot to learn about credit cards my friend :) – guy with #23cards and a #730creditscore.. #neverbeendenied

I’m thoroughly impressed someone has time to sign up for 23 credit cards. But when the average credit score of a rejected mortgage applicant is 729, maybe not so much. The purpose of my post on the ideal number of credit cards is not to see who can get the most credit cards. The goal of the post is to encourage people to utilize their time more wisely and look beyond the addiction of credit card rewards after a certain point.

Explanations For My Theory On Credit Cards And Net Worth

I postulate the more credit cards you have, the lower your net worth and vice versa. Here are three variables as to why.

1) Age

Young people have more time on their hands. When you have more time on your hands you tend to waste time with suboptimal activities such as spending time on Facebook.

Younger people appreciate a $100 benefit more than an older person with a family and a much higher net worth. If you’re only making $15 an hour, the $100 in rewards points is worth seven hours of your working life! If you’re making $100 an hour as a seasoned professional, then you really don’t get excited anymore.

2) Education

If you aren’t an odd duck who spends hours understanding what goes into calculating your credit score like me, then you have no concern for opening up as many rewards cards as possible. It’s like never finding out what ingredients go into your favorite food.

If you knew how much buttercream went into your favorite cupcake, maybe you wouldn’t eat it no more! It would be dumb not to open up a Macy’s card which will save you 10% off your $500 purchase. But as you all know, there’s a point of diminishing returns where opening up too many lines of credit begins to hurt your credit score.

The lower your credit score the higher the interest rate for bigger ticket items such as a home. The higher the interest rate, the less disposable income you have. The more education one has about real estate, the stock market, interest rate parity, and the make up of calculating a credit score, the less inclined they will be in taking out so many credit cards.

3) Discipline

The “spend more save more” mentality is huge among lower income groups who focus on quantity instead of quality. “Buy One Get One Free” is a staple advertisement ploy at places like Walmart and JC Penney for example.

Discount stores compete on VOLUME since their margins are so low due to price. Hence, their goal is to make consumers buy as much as possible, often times much more than they need. The more you cannot control your spending, the less you will have. It’s been shown that cash payers spend much less than credit card payers.

Delayed gratification is one of the hallmarks of personal finance. If you crave instant gratification and are addicted to “freebies” then you have a higher tendency to open up multiple credit cards.

Bottom line: There is a strong correlation between net worth, age, education, and discipline.

My Credit Card Example States The Case

I just look at my own scenario when I was in my early 20s. I had five credit cards because I made way less money, didn’t own real estate, had a much smaller net worth, and valued $1 more than I do now. Now that I’m in my mid-30s I’ve got three credit cards, one of which I just keep open and never use because I’ve had it for nine years. My other credit card is my corporate card which is a must for bookkeeping and tax purposes.

Perhaps I was able to get $1,000 a year in card rewards freebies when I was in my 20s. But if I had spent that time focusing on working harder at my job or coming up with a side business, I’d probably make 10X that amount because of a promotion, a good investment, or a great idea.

The goal is to get out of the small money thinking and get into the big money thinking. If you want to grow your wealth, you don’t want to be hanging out with folks who keep thinking in emergency fund terms.

Time To Take The Anonymous Survey

Before clicking on your survey choice below, I’d like for all of you to think about whether there is a correlation between the number of credit cards one has and their net worth and why.  In order for this poll to work, please be honest. The poll is completely anonymous.

I’ve included three credit card numbers (1-3, 4-8, 9+) and four net worth figures (less than $75,000, $101,000-$250,000, $251,000-$500,000, $500,000+) for simplicities sake. The average income of readers here is between $70,000-$85,000 based on an old poll hence the $75,000 lower limit. While the average reader age is between 27-34.

I realize there are those with 0 credit cards and broke, and those with 20 credit cards and are multi-millionaires, but you’re a rare bunch so please choose the closest answer to your situation. If you’d like to comment on your net worth feel free to do so as well.

Recommendations

Looking for an awesome travel rewards credit card? Check out the Chase Sapphire Preferred Card and some of the other best travel rewards credit cards.

I use my Chase credit card for all my business and travel spending to get points for more free travel, insurance in case my bags are lost or my flight is stuck, and more insurance for defective products I buy and want to return.

Everybody should have a credit card for the free 30 day credit. Just make sure to pay off your credit card every month in full! Check out some of the benefits below and my detailed review here.

• Earn over 60,000 bonus points when you spend $4,000 on purchases in the first 3 months from account opening. That’s a ~$750 value in travel rewards right there.
• Named a ‘Best Credit Card’ for Travel Rewards by MONEY Magazine and ‘Best Credit Card for Flexible Travel Redemption’ by Kiplinger’s Personal Finance
• You get 2X points on travel and dining at restaurants & 1 point per dollar spent on all other purchases.

Check Your Experian Credit Score Today: Check your latest Experian credit score straight from their website. Experian is the most commonly sourced of the big three. It’s a good idea to see what your credit score is before applying for a loan.

If it’s below 720, you won’t get the best rate, but at least you can spend time to improve your score. Furthermore, 1 out of 4 credit reports have errors, negatively affecting one’s credit score. I had a $8 late electric bill that crushed my credit score by 100 points and almost derailed my mortgage refinance. The scary thing is, I had no idea! A FTC study reported that roughly 25% of credit reports have inaccuracies.

Updated for 2020 and beyond.

_{Disclosure: Financial Samurai has partnered with CardRatings for our coverage of credit card products. Financial Samurai and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. Responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.}

_{Disclosure: Financial Samurai has partnered with CardRatings for our coverage of credit card products. Financial Samurai and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.}

One reader with a 805 credit score e-mailed me saying he recently got denied for the Barclays Arrival World MasterCard. As part of the FICO Open Score Access initiative, he got his credit score in the mail plus the nice rejection letter. The reason for the rejection was a high debt-to-income ratio.

The credit score is supposed to encapsulate everything from outstanding debt, number of credit lines open, and debt to income levels, yet here he is being denied a credit card with just a $3,000 monthly credit limit to start! If someone with a credit score that’s in the top 10% can’t get a credit card, what hope is there for the other 90%? Let’s find out more about his story.

The reader used to make about $200,000 a year for the past three years, but is currently unemployed and earns $40,000 a year from his various passive income streams + his $1,800 a month unemployment checks. He’s only got two other credit cards and always pays them off in full. The problem with his financial profile is that he has a $800,000 mortgage on a $40,000 income. With the industry standard of a mortgage amount no more than 5X your annual income at existing rates, it’s easy to see why a 20X ratio would cause concern.

But here’s the kicker. The reader also has $500,000 in cash, CDs, and liquid after-tax stock investments! Surely if you were the credit card company you’d be OK with approving a potential lifelong client even if he does have a high debt-to-income ratio of 20:1. What’s missing here is the calculation of debt-to-total-assets.