What Credit Score Do I Need to Get the Best Rewards Cards?
Rewards credit cards offer perks, such as points, airline miles or cash back. But what credit score do you need for a rewards credit card -- and what can you do to boost your score if it's not up to snuff?
The answer isn't black and white. Rewards cards are available to borrowers with a variety of credit profiles, so the required credit score will vary. But for cards with the best rewards, you'll probably need a FICO credit score of at least 670, which is considered good credit.
[Read: Best Rewards Credit Cards.]
Rewards Quality Depends on Your Credit Score
The quality of the rewards offered to you may depend on your credit score, according to Ethan Dornhelm, vice president of scores and predictive analytics at credit scoring company FICO.
"I do think there's a relationship between the extent of the rewards on the card and how creditworthy the borrower is in the eyes of the lender," he says. "From that standpoint, I think higher FICO scores can result in more appealing features on credit cards."
For example, rewards credit cards designed for consumers with fair credit usually offer one point per dollar or limit bonus rewards to categories that rotate throughout the year. But with good to excellent credit, you might be approved for travel credit cards that frequently offer at least two points per dollar on bonus categories year round.
Why Your Credit Matters
Lenders use credit scores and other factors to evaluate a borrower's creditworthiness. The scores are based on information including your payment history, credit utilization and recent credit inquiries. In general, the lower your score, the less likely you'll get a credit offer. Applicants with higher credit are not just more likely to be approved for credit but also may receive lower interest rates and better terms.
If your credit isn't good, that doesn't mean there's no hope of getting approved for a rewards card, but you may have to put in more legwork to ensure you get the best deal possible, according to Jeff Richardson, vice president and group head of marketing and communications for credit scoring company VantageScore.
[Read: Best Hotel Credit Cards.]
But credit scores are "one of a number of factors that lenders look at when they're setting APR," Dornhelm says. "They may look at other information in the credit file beyond just the score itself."
Credit card issuers may look at information on your credit report that may contribute to your score. Delinquent accounts -- that is, accounts with missed payments that creditors reported to the credit bureaus -- will hamper your chances of getting approved. Your credit utilization is another important factor. If credit card issuers see that you've had difficulty managing existing credit card debt, they are unlikely to offer you additional credit.
Dornhelm says your debt-to-income ratio -- which measures your monthly debt burden against your monthly gross income -- is one factor credit card issuers consider that isn't represented in a credit score.
"What we're seeing are increasingly sophisticated models lenders use to determine what APR a given borrower is going to pay," Dornhelm says.
Current cardholders may have an advantage. VantageScore uses trended data, which can help lenders decipher how consumers manage their debt, Richardson says. That data helps issuers distinguish between consumers who run up balances but pay them off each month, and consumers who carry a balance from month to month. That can help people who already use rewards cards responsibly get another card in the future, Richardson says.
FICO does not use trended data in determining its basic credit scores but is slowly incorporating such data into its offerings, according to Dornhelm. For example, in 2016, FICO launched Auto Score 9 XT, an auto-loan-specific credit score that uses trended data to help assess consumer risk, he says.
Will You Be Approved?
If you're not sure you can get the credit card you want, consider getting preapproved before you apply. With a preapproval, the issuer will do a soft inquiry on your credit report to tell you whether you meet the card's minimum requirements.
Getting preapproved doesn't guarantee you'll be approved when you apply. It just means the issuer has evaluated your credit record and decided you may be a good fit for the card. And because it's a soft inquiry, a preapproval won't hurt your credit score either way.
When you do apply for the card, the issuer will perform a hard inquiry on your credit report, which can ding your score.
[Read: Best Gas Credit Cards.]
How Can I Boost My Credit Score?
Even if you have a bad credit score, you can probably get approved for a rewards card. But the rewards may not be as good as those offered to those with the best credit, and you'll almost certainly end up paying a higher APR. It's in your best interest to boost your score before applying for a rewards credit card.
Many factors go into your credit score, but focusing on a few key areas should give your score a solid boost:
-- Payment history. Paying bills and making credit card payments on time will improve your credit score. On the other hand, if you have a history of late payments, your score will take a hit. Payment history is the leading factor in your FICO score, accounting for 35% of the calculation. If you're behind on payments, find a way to get caught up.
-- Credit utilization. Have you used more than 30% of your available credit? If so, your score will take a hit. Improve your score by paying down your credit card balances as much as possible. But don't worry about clearing your balances entirely. "I would say less debt is better than more, but some is also better than none in the sense that the score is looking for responsible, ongoing management of your credit," says Dornhelm. "You don't want to pay all of your balances to zero, to the point that you don't show any recent activity on your credit cards."
-- Credit inquiries. When you apply for a credit card or loan, it's reflected on your credit report. Each application is referred to as an inquiry. Each credit inquiry tends to lower your score a few points. If you apply for lots of credit and rack up many inquiries, it can have a detrimental effect on your score. The good news is that for many types of debt, such as mortgages or car loans, inquiries made within a certain window -- typically around 45 days -- count as a single inquiry to encourage rate shopping.
-- Credit history. How long have you been managing debt? The length of your credit history plays a role in your credit score. People without a credit history sometimes have difficulty getting their first credit card. One solution is to apply for a secured credit card. With a secured credit card, you pay a deposit that protects the credit card issuer if you're unable to pay back what you spend. Because credit card issuers aren't as likely to lose money on a secured credit card, they are more willing to issue them to people who don't have a credit history or who have poor credit.
Errors on your credit report can also negatively impact your credit score. You can obtain a free copy of your credit report from each of the three major credit bureaus once a year at AnnualCreditReport.com. If you find any inaccuracies, report them to the bureaus. You should quickly notice an improvement to your score once the errors are corrected.
Building your credit isn't a quick process, but by analyzing your credit report and taking steps to improve your score, you'll be able to get the lucrative rewards credit cards at an interest rate that won't break the bank.
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