The most common concern most people have when they hear about our strategy of continually opening new credit cards just for the bonuses is "Won't that ruin your credit score?"

In short, the answer is no. In fact, opening credit cards can actually boost your credit score.

In order to understand how opening cards can increase your credit, and what strategies you can implement to help ensure your credit goes up and not down, you need to understand how credit scores are calculated.

The next section has a video that goes over this info as well as strategies to keep your score high while opening lots of cards.

How Credit Scores Are Calculated

Different agencies have different methods for calculating credit scores. This is why your credit score will vary a bit depending on where you look.

FICO boasts that their scores are the standard for lenders. When determining your score, FICO takes into account five factors: payment history, amounts owed, length of credit history, credit mix, and new credit. If you want to read all about how FICO scores are calculated straight from the source, here is the info from FICO.

Payment History

You can see that at 35%, your payment history has the biggest impact on your credit score. You keep this part of your score high by paying your bills in full and on time. No matter how many cards you have, if you pay on time, this 35% will be strong.

If you are even considering opening up credit cards for points, you need to be diligent about never carrying a balance on a travel points card. The interest rates are astronomical and will cancel out any rewards you earn.

If opening more credit cards is going to lead you to spend more money on the cards, then this hobby is not for you. Booking with points is about leveraging spending to earn rewards, not about spending more!

Amounts Owed

Amounts owed accounts for 30% of your FICO Score. This number, known as your credit utilization rate, tells how much credit you are using compared to the total credit extended to you across all credit lines.

This is where opening new cards can actually help raise your score. As you open new cards the amount of credit extended to you will go up. Assuming you keep spending roughly the same amount, your credit utilization rate will go down.

For example, if I have one credit card with a $10,000 limit and I spend $3,000 a month on that card, my credit utilization is 33.3%.

If I open two more credit cards that each have a $10,000 limit, I now have $30,000 of credit. If I am still spending $3,000 a month, I am now using only 10% of my credit limit.

The general rule is that to keep your score high you should have a credit utilization rate of less than 30%.

Length of Credit History

Length of credit history makes up 15% of your credit score and looks at the average age of your credit lines. Banks look favorably on longer credit histories. This is why we recommend downgrading cards rather than canceling and not closing your oldest account. If you close all your accounts after one year then this portion of your credit score will take a hit.

Credit Mix

Credit mix makes up 10% of your credit score. This refers to having a variety of lines of credit, including credit cards, auto loans, a mortgage, etc. This shows lenders that you're good at managing your credit lines.

New Credit

New credit makes up 10% of your FICO score. When you apply to open a new line of credit, lenders will inquire about ("pull") your credit report. Some of these pulls — hard pulls — end up on your credit report, whether or not you are approved. Hard pulls tell lenders that you have been looking to borrow. The more hard pulls you have, the riskier lenders may view you. As a result, after applying for a new personal card you will see a small ding to your credit report.