A reader asks:

Ok, what credit score should you have before you start applying for reward cards?

Thanks!
Jenna

First, thanks for the great question. Second, congratulations on rebuilding your credit! It is your hard work that has earned you the chance to earn an reward.

When To Apply?

As for what credit score you should shoot for before you start applying for reward cards, I have a few suggestions rather than a simple number. It can’t be said often enough that a reward cards are only for people who pay off their entire balance, in full, every month, on all of their credit cards. The reason is simple, even a very low interest rate is far higher than the value of the best rewards. Once you are consistently able to pay off all of your interest incurring debts, and you are confident of your ability to do so in the future, only then should you start considering which reward card to apply for. Until you reach that point, your only consideration should be a card with a low interest rate and no annual fee.

What Score Should You Have To Apply?

I personally would consider “good” credit to be somewhere around 650 and up. Guess what? I am not in the position to approve credit cards. If you are sure that you will be paying off the balance in full, on time, every month, then you are free to look for the best reward card. At that point, there is no harm in applying for the best card to meet your needs. The worst thing a credit card company can do is say no. It happens, don’t take it personally, and keep trying hard to improve your credit. To put life in perspective, I would much rather be rejected by a bank than a date!

Of course, you real question mention applying to credit cards (plural). If you are still rebuilding your credit, you should continue focusing on that effort, rather than accumulating rewards. As wonderful as rewards are, the best cards may only give you up to 5% of your spending, frequently less. These days, your credit score is used for not just home and auto loans, but rental applications, insurance rates and even job applications. Adversely affecting any of those applications would catastrophically negate any reward you might receive. My advice would be to stick to one or two reward cards, and watch your credit rise as you pay off the balance every month, on time. Stay away from the advanced strategies of applying to multiple cards in order to earn sign up bonuses until your credit is rock solid.

Which Card Should You Apply To

Since there is no harm in applying, find the card that best meets your needs. Since travel cards take a lot of spending to accumulate a nice reward, I would recommend starting with a cash back card that earns an instant return on every dollar spent. I would also shoot for one with no annual fee. Try the American Express Blue Cash card or the Capitol One No Hassle rewards card. If you do travel frequently for business, pleasure (or to visit family : ), then you might consider starting with a credit card tied to a frequent flier program that you are already a part of.

The most important advice is to stay away from offers for sub-prime credit cards or ones targeted on people with imperfect credit, even if they offer a reward. These cards impose high annual fees, low credit limits, and numerous “gotcha” clauses in the fine print. They may offer some reward, but I would forgo any card with an annual fee unless it had an enourmous sign up bonus.

This entry was posted on Thursday, October 23rd, 2008 at 23:43 and is filed under Maximize your Credit Card Rewards. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.