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Here’s What Applying for Multiple Credit Cards Does to Your Credit Score

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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:

Nick

I moved back to the US in September 2013.

A combination of nostalgia (I used to run Barclays in the UK), inspired me to apply for the Barclays 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 American Express® Card (this card is no longer available). 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.

FICO Credit Meter

 

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.

Brian

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 Barclays 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 – Ink Bold® Business Charge Card from Chase Bank *This card is no longer available.

June 2013 – Platinum Delta SkyMiles® Credit Card from American Express *This card is no longer available on MagnifyMoney

September 2013 – Ink Plus® Business Credit Card from Chase Bank

January 2014 – United MileagePlus® Explorer Card

January 2014 – Citi® / AAdvantage® Executive World Elite™ Mastercard®

May 2014 – Gold Delta SkyMiles® Credit Card from American Express

promo-cashback-halfI am fortunate to have excellent credit as a starting point, so that’s put me in a good position to take advantage of deals on cards I want to use.

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.

Credit Rating

Erin

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® Cash Back 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.

Have questions about how to improve your credit score? Explore our building credit section of the blog, tweet us @Magnify_Money or email us at [email protected]

 

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at [email protected]

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What Do Mortgage Loan Officers Worry About Most? Not Your Credit Score

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

As a nation, we obsess over credit scores. Once hidden in the computer terminals of banks, they’re now available for free to you via many providers on the internet. But in reality, getting a loan takes into account much more than just your credit score. And nowhere is that more clear than when you try to get a mortgage or refinance an existing one.

The process is usually murky, but a 2014 survey of loan officers by FICO sheds some light on what really matters.

The survey asked what factor would make a loan officer most hesitant to approve a mortgage, and the No. 1 answer took the lead by a wide margin:

  • High debt-to-income ratio 59%
  • Multiple recent applications 13%
  • Low FICO score 10%
  • Frequent job changes 9%
  • Lack of savings 8%

Clearly, your debt-to-income ratio is key.

Why is debt to income a bigger factor than your score?

It is crucial that a borrower be able to afford a loan. What you pay every month toward your house and other obligations compared to what you earn is the most important factor. A FICO score only tells whether you are a reliable payer, not whether you can afford a house.

The loan officer can look past a less-than-perfect FICO score if you’re buying a house you can truly afford. Being able to afford a house means keeping your debt-to-income ratio below 36% when counting all of your monthly debt obligations, including credit cards, car loans, student loans and housing expenses.

Officially, conforming loans can be secured with debt-to-income ratios as high as 45% or so, but that’s cutting it close, unless you have substantial savings or bonuses that don’t get counted in the income calculation. Ideally, you shouldn’t be going any higher than approximately 35%.

Think about it this way: If you’re pulling in $5,000 a month before taxes, a 45% debt-to-income ratio means you’re paying $2,250 a month servicing your mortgage and other debt. With a 35% tax rate, you’re left with just $1,000 in cash each month for other expenses.

Yes, you may get a tax benefit at the end of the year for deducting interest, if you itemize, but the reality is you’re pretty house poor in this situation, even if you have a perfect credit score.

At a 35% debt-to-income ratio, you’ll have $1,500 a month in cash for your other expenses. That’s 50% more left to spend than with a 45% ratio.

Will a better score help at all?

Your credit score can definitely help when it comes to getting a better mortgage rate.

Here is a national sample of 30-year fixed mortgage rates on a $300,000 loan by FICO score as of May 29, 2019 (these numbers will change frequently, but this should give you a general idea of how your score might affect your rate):

  • 760- 850: 3.701% $1,381 / month
  • 700-759: 3.923% $1,419 / month
  • 680-699: 4.100% $1,450 / month
  • 660-679: 4.314% $1,487 / month
  • 640-659: 4.744% $1,564 / month
  • 620-639: 5.290% $1,664 / month

The difference between a marginally excellent credit score (700-759) and a truly excellent one (760+) is about $38 a month on a $400,000 mortgage. That’s around $494 a year, and $14,820 over the life of the mortgage.

Don’t take on new credit

One thing you should understand if you’re in the market for a mortgage is that you should be careful about applying for new credit.

Loan officers don’t want to see a lot of recent credit applications, and each one can temporarily ding your FICO score five or 10 points. So if you’re on the borderline of 760, 700 or 680, it’s best to avoid opening any new credit accounts for about six months before getting a mortgage. Otherwise a couple of cards could end up ultimately costing you in extra payments.

And if you have a borderline score, pay as much debt off as you can before applying.  This will help your debt-to-income ratio, and improve your score. Just make sure you do it at least one month before applying for the mortgage, as banks typically report data to the credit bureaus only once a month.

And don’t be afraid to shop around for the best mortgage rate; just make sure you do all your shopping in a short period of time for the smallest impact to your score. Multiple mortgage inquiries during one shopping period (typically 30 days or less) only count as one inquiry on your credit report.

Need help figuring out which lender to go with? LendingTree, MagnifyMoney’s parent company, has a handy mortgage shopping tool. You may be matched with lenders who want to lend to someone with your score and income. You can start the mortgage comparison process by visiting LendingTree’s website:

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Bottom line

you don’t need a perfect FICO score to qualify for a mortgage, or even to get a fair rate. But you do need to be looking for a home you can truly afford based on your income.

While you may qualify for a bigger, better house than you thought you would, it doesn’t mean you’ll be able to afford your current lifestyle with that bigger payment.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Brian Karimzad
Brian Karimzad |

Brian Karimzad is a writer at MagnifyMoney. You can email Brian at [email protected]

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When It Can Make Sense to Open a Store Card

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

“And would you like to open a [insert store] card today to receive an extra 10% off your purchase?”

We’ve all heard this upsell strategy. Store credit cards seem to be available at just about any place you exchange currency for goods — except for maybe 7-11. But before you sign up, it’s important to know how opening a store card can help, or hurt, your finances.

What Are Store Credit Cards?

There are two types of store credit cards: store-only (closed loop) and co-branded (open-loop). The closed loop version limits your ability to use the card except with the retailer and its affiliates. The open-loop version carries a card network logo, such as Visa or Mastercard, which can be used anywhere Visa or Mastercard cards are accepted.

Some retailers offer both closed and open-loop versions of their cards, while others only offer a closed-loop card. Typically, the closed-loop cards are easier to be approved for: they often come with lower credit limits, and can be great for consumers looking to build or rebuild their credit scores.

The open-loop cards can require a higher credit score for approval, and some retailers will allow you to upgrade from a closed-loop card to an open-loop card after you’ve demonstrated good payment behavior with the closed-loop card. Or, they may require card applicants to apply first for the closed-loop card and, upon review of their credit file, approve them for the open-loop version, depending on their creditworthiness.

Pros and Cons of Store Cards

In addition to an initial discount on your first purchase, store cards can entice shoppers to return with ongoing discounts, special pricing and rewards programs. If you’re a regular shopper at that particular retailer, those discounts can help you save money, provided you pay off the balance in full when the bill is due. On the flip side, you may find yourself overspending on the card, as the temptation to just pull out the card when you don’t have the cash could be hard to resist.

Here are some pros and cons of applying for a store credit card:

Pros

Initial and ongoing discounts. If you’re purchasing a large-ticket item, getting a 10% or 20% discount can be a smart decision. And if you regularly shop at a particular retailer, taking advantage of ongoing promotions and sales will also help you save money.

Store perks. In addition to regular discounts and promotions that may come with a store card, some also throw in more perks like free shipping, invitation-only events, coupons and rewards programs.

Building credit. If you’re new to credit, getting a low-limit store card can be a great way to get started, as these cards are typically easier to qualify for. The payment activity of the card will be reported to the credit bureaus. As long as you handle the card responsibly, your good payment history will be reflected on your credit reports.

Rebuilding credit. If you’ve made financial blunders that have negatively impacted your credit score, getting back on track with a store card is an option you can try before having to resort to a secured card, which will require a deposit of several hundred dollars.

Cons

High interest rates. The average APR for new store credit offers is 24.97%,  compared to 16.91% for credit cards in general. With such high APRs, you don’t want to roll over a balance month to month on these cards or you may fall into a debt spiral, finding it ever more difficult to dig your way out of debt as interest charges pile up. Plus, any interest you pay will effectively negate any discount you got for using the card in the first place.

Low credit limits. While a retailer may increase your credit limit over time with responsible use of a store card, your initial credit line on a new store may just be a couple hundred dollars. If the amount of your purchases regularly comes close to maxing out your credit limit, your credit score will be negatively affected, as credit utilization (your balance compared to your credit limit) accounts for 30% of your credit score.

Read 6 Simple Steps to Improve Your Credit Score

Increased temptation to spend. Knowing you’ve got access to retailer credit, even though you don’t have the cash to spend, can make it too easy to rack up purchases you otherwise you couldn’t afford. And if you don’t have the funds to pay off the balance at the end of the month, you’ll be socked with sky-high interest charges.

Limited rewards redemption. Store card rewards programs typically require cardholders to use their rewards, cash back or points at that particular retailer or its affiliates only.

Deferred financing traps. If you apply for a 0% deferred financing credit card offer where you are given a fixed period of time to pay off a purchase without incurring interest charges, know that you run the risk of being hit with back interest from the time of purchase if you don’t pay off the balance during the 0% promotion time frame.

Hard inquiry. Anytime you apply for a new credit card, the lender will review your credit file to evaluate your creditworthiness. This is called a hard inquiry and will knock a few points off your credit score. The good news is that the inquiry’s impact will only last a year.

Read Minimize Rejection: Check if You’re Pre-Qualified for a Credit Card

Tips for staying out of trouble with store cards

Have a payoff plan. If you apply for and use a store card specifically to take advantage of a discount or promotion, have a plan in place for paying off the balance before interest charges accrue.

Resist overspending. Leave your store card at home unless you have a specific purchase in mind — that way you won’t succumb to impulse spending if you happen to walk in the store and have the card on hand to make unplanned purchases.

Make multiple monthly payments on high balances. To maintain low credit utilization on a low-limit card, it can be smart to make multiple payments online throughout the month. Better yet: once you make a purchase with the card, pay it off the next day online.

Cancel the card if it leads to too much temptation. While canceling a card can hurt your credit score, being buried in debt you can’t easily pay off is worse. If having a store card makes it too easy to spend beyond your means, you’re better off without it.

Bottom line

Store cards are great if you’re looking for a way to build or rebuild your credit score as they’re generally much easier to qualify for, but they can be dangerous if they tempt you to spend more than you can afford to repay. If you’re not careful, the high APRs and low credit limits that are often associated with store cards can quickly lead to trouble. But if you shop regularly at a retailer, being able to access discounts on a regular basis can help you save money, as long as you’re diligent about paying off the balance in full by the due date.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Julie sherrier
Julie sherrier |

Julie sherrier is a writer at MagnifyMoney. You can email Julie here

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