Update: Have you used this strategy to improve your credit score? Let’s hear about it in the comments!
Originally posted on 11/08/12:
One of the most common fallacies that people have about their credit score is that paying their bill off in whole once they get their statement is good enough. It’s not.
The truth of the matter is that once you get that statement it’s too late, the damage has been done on your credit report already.
The “amounts owed” section of your credit report makes up a whopping 30% of your FICO score (only your payment history makes up a bigger percentage than that) and it does not differentiate between whether you pay off your bill in full or in part. All it is is a snapshot at any given point in time of how much you owe and what percent of your credit is being used on each card individually as well as on all your cards collectively.
The amount owed on your credit report can be from the middle of a billing period or at the end of a billing period depending on the bank. The fact that you always pay it off in full once you get your statement doesn’t matter at all. If you make a large charge on a card and your bank reports that charge before you pay it off then your score will be significantly lower than it would be if you didn’t owe anything. It’s said that ideally you shouldn’t even use 10% of the credit line of any of your cards in order to optimize your score. Using more than half of your credit line on any given card can drop your score significantly.
So what can you do? Prepaying a card before making a charge is not a good idea, especially with American Express. You can pay down your balance before your statement closes, though you still typically want it to show some level of activity on the card and you may not want to tie up your funds weeks before you have to.
Or you can get a business card and put your spending there.
Spending done on business cards is not reported to the credit bureaus. Neither are their credit lines. So you can theoretically max out a business card and it would not hurt your personal credit score. Whereas on a consumer card it would have a massive negative effect on your score, even if you will and always do pay it off in full.
Additionally on a business card the credit line is never reported to the bureaus. Thus when you go to close the card you don’t lose that credit line. Closing a consumer card on the other hand can hurt you unless you shift that credit line to another card or use that credit line as leverage to get approved for a new card, something that not all banks will allow you to do.
It’s important to note that if you fail to pay a bill owed on a business card that it will get reported on your personal credit report. But as long as you make timely payments it will never get reported.
Getting a business card is quite simple. You don’t need to be a traditional “business owner” as you might think of one.
For example if Joe Smith sells items on Ebay or on Amazon, or has any other side business/hobby and wants a credit card to better keep track of business expenditures he can just open a business credit card for “Joe Smith Sole Proprietorship” as the business name. You don’t need to file any messy government paperwork to be allowed to do that.
Just be sure to select “Sole Proprietorship” as the business type and just use your social security number in the Tax Identification Number field as well as in the social security number field.
I’ve had business cards since I turned 18 as a Sole Proprietor and never had a problem getting approved with reconsideration if needed. You can reach Chase business reconsideration at 800-453-9719 and American Express reconsideration at 866-314-0237.
So what cards are out there?
Chase has business cards that earn Ultimate Rewards, an awesome transferable point currency that can be used for United, British Airways), Hyatt, and much more. Click here to read more on that.
-There is the Chase Ink Bold Charge Card and the Chase Ink Plus Credit Card.
Both of these cards currently offer 50,000 bonus points after for spending $5,000 in 3 months. Previously these had required $10,000 in spending.
The Ink Bold and Plus cards have a $95 annual fee which is waived for the first year and those cards allow Ultimate Rewards points to be transferred to airlines or hotels. A lounge club membership with 2 annual visits is included for free for the primary user and for all free additional users! There are also no foreign exchange fees with these cards.
The Bold card is a charge card that must be paid in full every month and has a flexible spending limit while the Plus card is a credit card that has a defined credit limit and can be paid over time. I’ve gotten approved for both types no one reconsideration call.
With 110,000 points that you can get with the Bold and Plus cards after spending the threshold you can book more than 24 short-haul flights on American, fly round-trip business class to Europe with no fuel surcharges, or even fly in Kosmo Suites first class on a Korean A380. With 100,000 United miles you can fly Newark-Israel-Newark and Newark-Hawaii-Newark with no fuel surcharges.
These cards also offer a whopping 5 points per dollar spent on up to $50,000 annually at office supply stores, and internet/telecom/cable bills.
People like to buy gift cards from office supply stores like Office Max, Office Depot, and Staples for stores like Amazon.com, clothing stores, and much much more with no fees. You can also save on your gas purchases and earn way more miles by buying gift cards from office supply stores.
You can even purchase prepaid cards from office supply stores that can be used at any store. A $200 Visa prepaid card will cost you $6.95 but you’ll be able to use it anywhere and you’ll earn 1,035 miles for each one that you buy! Plus there are occasional promotions to defray or negate those fees. You can even cash them out for free with Amazon Payments, so they’re a good way to meet spend thresholds.
You also earn 2 points per dollar on gas stations and hotels. Don’t forget that many gas stations also sell gift cards and prepaid cards and there’s no cap to the 2 points per dollar earnings.
-Then there is the Chase Ink Cash Credit Card.
The cash card offers 20,000 bonus points for spending $3,000 in 3 months. It also offers 5 points per dollar spent on up to $25,000 annually at office supply stores, and internet/telecom/cable bills. You also earn 2 points per dollar on gas stations and restaurants. A lounge club membership with 2 annual visits is included for free. There is no annual fee, though you or your spouse need a Bold, Plus, or Sapphire Preferred card to transfer those points into real miles.
-On the American Express side you also have plenty of great cards to choose from that I’ve talked about in the past. The Starwood and Business Gold carda both can earn more than 1 airline mile per dollar spent. You can read more about them on the Credit Card page here:
-Starwood Preferred Guest® Business Credit Card from American Express OPEN
-The Business Platinum Card® from American Express OPEN
-Gold Delta SkyMiles® Business Credit Card from American Express OPEN
-SimplyCash® Business Card from American Express OPEN
-The Plum Card® from American Express OPEN