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Credit Card Signup Bonus Hunting Hurts Credit Score

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Citi HSBC AMEX Credit CardsIf you were in the market for a credit card before the Great Recession, you probably remember the rich rewards companies were offering for you to use their card. Credit was flowing freely and unless you were being paid a $100 gift card to sign up for a card, it probably wasn’t even worth your time! The 25,000 mile or $200 gift card promotions were there for the taking, especially if you had a good credit score. When the economic slowdown hit, those offers dried up. Credit card companies started closing accounts and it was rare to see a good offer unless you had a fantastic credit score. Credit card companies were playing defense.

Well, I don’t know if it’s a recovery based on the economic statistics, but the credit card companies must thinks so because the offers have been coming back in the last year or so. While you won’t see as many $200 or 25,000 frequent flyer mile promotions, they are certainly out there and it may be tempted to go on a signup spree to get all that free cash. I don’t think anyone, except the credit card companies, would begrudge you if you did!

It’s important to know what applying for credit cards, whether it’s one card or eight, will have a negative impact on your score.

When you apply for a credit card, the company makes a hard inquiry on your credit report. Each hard inquiry will drop your credit score a few points and, I suspect, a lot of them will accelerate the drop. Remember, your credit score is a measure of your default risk, the likelihood that you will not pay back your debts. Someone who is suddenly applying for a lot of credit looks riskier than someone who hasn’t applied for a lot of credit. Someone reviewing your credit won’t know that you applied for all these cards to get $100 or $200 a pop each time, they just see someone who needs a lot of credit cards!

What if you don’t care and you want to take advantage of all the programs? The best way to do this is to apply for them all on a single day. Each application will result in a hard inquiry and once that happens, the damage is, for the most part, done. So you want to apply for all the cards and maximize the chances you are approved. The best way to do that is to apply as quickly as possible so that each of the credit card companies pulls your credit before the credit bureaus list the hard inquiry on your report. There’s a delay between when a credit card company pulls your credit and when that pull appears on your report. You want to squeeze in all the applications before the pulls start appearing. This won’t minimize the impact those pulls will have on your score, it simply maximizes the approval rate so you get the most out of the credit score drop.

The negative impact goes beyond just the hard inquiries because the influx of new accounts means your average age will go down too. It’s hard to say how much that will affect your score but it will have a negative impact. It’s not all negative though. The influx of credit also means your credit utilization will go down which is a positive for credit scores. Perhaps that balances out the average age drop… it’s hard to say since the credit score equation is a black box.

I’ve never done this but I know plenty of people have. Have you done this?

(Photo: sovietmole)

{ 8 comments, please add your thoughts now! }

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8 Responses to “Credit Card Signup Bonus Hunting Hurts Credit Score”

  1. Aloha Jim,

    I must admit, I do this all the time. The reason is that I fly on Hawaiian Airlines between Hawaii and the mainland often, and each new Hawaiian Miles card gives me 35,000 miles (if it is the VISA signature card) after I spend $1000 in the first 4 months.

    With those miles, I can use to book one way with miles, and the other with dollars, or upgrade to first class, or share with my family and friends. I also get a 25% of roundtrip for 2 to the mainland which comes in handy if I travel to Las Vegas with my husband.

    I know I sound like a commercial, but I love these cards, and I do need to remember to close them out before they get too “old” otherwise I have too many cards, which the credit scores also don’t like. I also pay down balances to $0.

    However, now that I am looking to refinance our home mortgage because of the super low interest rates, I must behave – at least until our loan closes. New cards and credit hits are definitely negatives on credit reports.

    Great article – always enjoy reading your posts.

    Aloha from Aunty

  2. Jim M says:

    I can’t imagine applying for so many credit cards in one day – even if the offers are tempting. Keep in mind there is the challenge of managing credit cards once you have obtained them. For me this challenge often outweighs the tempting offers thrown at me.

  3. eric says:

    The days of App-o-rama :)

  4. cubiclegeoff says:

    There are still many people that do this. There’s a whole group of people that do it just for travel rewards, like miles or hotel stays and are very successful at it. If you’re good with your credit, don’t plan on getting any loans, and want the rewards, it can be done successfully with great reward.

  5. I would have a problem hitting all of the spending requirements if I had to apply all on the same day. I pick a couple a year and apply to them. I should take part of the reward money and use it to pull my credit score before and after. Would be an interesting comparison.

  6. I do this about every 6 months or so. I apply for 6-10 cards with sign up bonuses and cash in about $1000 each time. Rinse, repeat. My credit score does not matter right now. I already have a mortgage, and my cars run well and are paid for.

  7. I usually sign up for about 4-5 cards a year, my credit score is still 750+ and I only go for the cards that offer 50,000 pts or $400 or more in cash. This money is tax free but it does take discipline to track and manage all your cards.

    Good tip about applying all on the same day, just make sure it’s with different companies. Obviously Chase would be able to see you have 2 applications in at the same time and their system will auto-deny the second.

  8. Dany Rudder says:

    Yap! People are very conscious now a day of their credit card. I think this is really intelligent job if any one doesn’t plan on getting any loans. It will not only reduce their balance due but also rewards them. So, have to think about before make a plan. Thanks for this nice expose. Keep it up :)


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