We frequently hear people are afraid to apply for a credit card because it will cause their credit score to drop. This fear keeps them from getting deals on a balance transfer or finding a new credit card to maximize their spending habits for cash back rewards. At MagnifyMoney, we see properly utilized credit cards as an effective tool to increase financial health. Balance transfers can significantly decrease the money spent on debt; while cashback rewards can easily put some money in your pocket on your everyday spend.
Your credit score shouldn’t just be a trophy sitting on your mantle, it’s something that should be used to make sure you’re getting the best deals. Yes, applying for a new credit card will cause a decrease on your score – usually around five points –because there is a hard inquiry on your credit report. However, we still think in a majority of cases, applying for a credit card is worth your time and minor drop in score.
The members of the MagnifyMoney team (minus Goofski of course) have all applied for multiple cards within the last year and still have high credit scores. Here are our stories:
I moved back to the US in September 2013.
A combination of nostalgia (I used to run Barclaycard in the UK), and a desire to get the 40,000 mile bonus offer, inspired me to apply for the Barclaycard Arrival in September 2013.
I then started the research for MagnifyMoney.com, and I wanted to personally test the products that we would be recommending to you.
In November 2013, I applied for Chase Slate® and successfully tested a balance transfer.
In May, I applied for two credit cards. I applied for the Fidelity Investment Rewards Card (the highest cashback credit card on the market), and I applied for the PenFed Premium Travel Rewards. PenFed has some of the best long-term balance transfer offers out there. I wanted to see what it was like to join the credit union, apply for the card and execute a balance transfer. They asked for quite a few documents, but it worked out in the end!
Before these four applications, I had not applied for credit in over a year.
My official FICO score started around 788 in September. It is now 814.
CreditKarma uses TransUnion, and gives me a score of 766. CreditSesame uses Experian, and it says my credit score is 811.
Why did my score go up? A credit inquiry is not a big deal. Credit utilization is a big deal. With these four new credit cards, I added over $50,000 of new “available credit.” And I haven’t used any of it. So, my utilization has gone way down.
I've applied for six credit cards in the last year, which earned me about 350,000 points and miles for travel. That might sound extreme, and it's not for everyone, but my credit score has barely budged.
My FICO score provided by Barclaycard has moved from 833 a year ago to 819 now.
My CreditKarma Transunion score has remained flat at 790, while with Experian my score has remained at 750, though with a brief dip to 740 after my first applications a year ago.
Here are the cards I opened:
June 2013 - Chase Ink Bold Card
June 2013 - Delta SkyMiles Platinum Amex
September 2013 - Chase Ink Plus Card
January 2014 - Chase United MileagePlus Explorer
January 2014 - Citi Executive AAdvantage
May 2014 - Delta SkyMiles Gold Amex
My case might seem extreme, and I'm willing to pay annual fees in order to earn rewards I put to good use with travel.
But it shows that if you have great credit you shouldn't be afraid to use it to your advantage, whether that's to get a better rate on debt or to earn bigger rewards.
While some people who are more aggressive about earning rewards like to group applications together on a single day to minimize the impact on their score, I tend to apply when I see offers I think are outstanding and find the time to manage meeting the spending to earn them.
This haphazard approach has served me fine - I've experienced no denials and my credit scores have held up well.
Banks want new customers who pay on time and keep their debt in check.
They're ready to reward you if you're willing to shop around regularly for better deals.
I applied for three credit cards in the last six months after nearly seven years of not applying for any new lines of credit. I opened my first (and for a long time, only) credit card in 2007 when I entered college.
It all started in January of 2014 when I used CreditKarma to try and discover my score. After filling out all the information I promptly received a notice that I had a “thin file.”
Considering I opened a credit card in 2007, made a few purchases each month and paid my bill on time and in full, I felt a little baffled as to how I had a thin file.
The single credit card seemed to be part of the reason I had such a thin file because I had no other types of credit. I knew I wasn’t going to take out a loan simply for the sake of diversifying types of credit. Instead, I decided to apply for some new credit cards.
This was pre-MagnifyMoney.com, so I didn’t have our cashback tool as a resource. I ended up with the Discover it card because I liked the idea of seeing my FICO score each month.
In February, my Discover statement said my FICO score was 790. Within a month, I applied for the Delta American Express card as well as a Banana Republic Visa (which I chronicled in this blog post).
Applying for so many cards after seven years of no new lines of credit probably raised some red flags to lenders. My score dropped from 790 to 750 in two months.
In June, my score already went up 12 points and currently sits at 762. I believe this is because I drastically increased my available credit limit without increasing the amount of money I spent. Now I have a significantly lower utilization rate on my cards, which indicates that I’m a responsible borrow.
Goldman Sachs Bank USA High-yield 12 Month CD
Synchrony Bank 12 Month CD
Synchrony Bank High Yield Savings
Barclays Online Savings Account
* All banks listed are a Member FDIC.