Unveiling the Myth: Will Opening Multiple Credit Cards Truly Harm Your Credit Score?

Opening new credit cards for the bonuses can impact your credit score, but the extent of the impact depends on various factors. Each time you apply for a new credit card, a hard inquiry is made on your credit report, which may cause a slight dip in your score. Additionally, the average age of your credit accounts can be affected, as new cards contribute to a lower average age.

The act of opening credit cards just for the signup bonuses has the potential to enhance your credit score. To grasp how the process of opening cards can positively impact your credit and to explore effective strategies for ensuring an upward trajectory in your credit score, it's essential to delve into the mechanics of credit score calculations.

What is the significance of credit scores?

Credit Reports

Credit reports consolidate information about your various credit lines, including credit cards, mortgages, and auto loans, along with your payment history on these accounts. These reports are generated by the three major credit rating bureaus – Experian, Equifax, and TransUnion.

Credit Rating Agencies, such as FICO, assign a credit score based on the data present in your credit report.

Credit Scores

Your credit score is a numerical representation, ranging up to 850, designed to assist lenders in determining whether to approve your loan application.

A low credit score suggests a higher risk for lenders, making it more challenging for you to secure loans with favorable terms. Individuals with low scores may face difficulties in loan approval and might encounter less favorable loan conditions.

Conversely, a high credit score makes lenders more willing to extend loans with favorable terms, as they have greater confidence in your ability to meet repayment obligations.

Credit Score Range: <580

Credit Score Rating: Poor

Description: This credit score is well below the average score of U.S. consumers and

demonstrates to lenders that the borrower may be a risk.

Credit Score Range: 580-669

Credit Score Rating: Fair

Description: This credit score is well below the average score of U.S. consumers, though

many lenders will approve loans with this score.

Credit Score Range: 670-739

Credit Score Rating: Good

Description: This credit score is near or slightly above the average of U.S. consumers and

most lenders consider this a good score.

Credit Score Range: 740-799

Credit Score Rating: Very Good

Description: This credit score is near or slightly above the average of U.S. consumers and

demonstrates to lenders that the borrower is very dependable.

Credit Score Range: 800+

Credit Score Rating: Exceptional

Description: This credit score is well above the average of U.S. consumers and

clearly demonstrates to lenders that the borrower is exceptionally low risk.

Credit cards may not immediately come to mind as loans, but when you make purchases using a credit card, you are essentially borrowing money from the bank. To ensure that you will repay the borrowed amount, banks typically conduct a thorough check of your credit report before approving your card application.

Various factors are considered by card issuers during the approval process, with your credit history playing a significant role. To be eligible for some of the top travel cards, a credit score in the very good or exceptional range is often a prerequisite.

How do they calculate credit scores?

The calculation of credit scores varies among different agencies, leading to slight variations in your score depending on the source.

FICO claims to set the standard for lenders, considering five key factors in their score determination: payment history, amounts owed, length of credit history, credit mix, and new credit. For a detailed understanding of how FICO scores are calculated, you can refer directly to the information provided by FICO.

Your credit score comprises five components, each contributing to a specific percentage:

1. Payment history (35%): Ensuring timely and full payments each month is crucial.

2. Credit utilization (30%): It's advisable to use a small portion of your available credit rather than maxing out a limited amount.

3. Credit age or history (15%): Retaining your oldest accounts positively impacts your score.

4. Account mix (10%): Diversifying your credit with various types of accounts, such as home loans and credit cards, is beneficial.

5. Account inquiries (10%): While inquiries may have a temporary impact, the effect is generally short-lived.

Although I am not a financial advisor, adhering to these practices has led to an increase in my credit score. I currently have an 800+ score.

How to keep your credit score high?

When I began engaging in credit card churning, my credit score was initially in the low 800s. However, I have since consistently maintained levels closer to 840.

To ensure a high credit score while actively opening cards for points, consider the following recommendations:

1. Maintain your oldest credit card: Keeping your oldest credit card open helps extend your total average credit history.

2. Explore downgrading or product changing: If faced with an annual fee, inquire about downgrading the card or changing it to one with no annual fee. For example, Chase allows downgrading from a Sapphire card ($95 annual fee) to a Freedom card ($0 annual fee), contributing to a longer credit history.

3. Opt for business cards when possible: Business cards typically don't reflect on your personal credit report as open accounts, thus preserving your credit history.

4. Consistently pay bills on time and in full: Timely and full bill payments contribute positively to your credit score.

5. Be mindful of recent credit inquiries: Understand that a new credit application might temporarily impact your credit score, although the extent of the effect can vary.

How to check your credit scores?

I subscribe to and use CompleteID to access my credit report from TransUnion, Experian, and Equifax, along with an estimated credit score. While this estimate may be slightly higher than what banks use, it provides a general range.

To view your Experian credit report, you can create a free account directly on Experian.com. Take the time to review your report for accuracy.

Many credit card issuers offer access to your credit history and score through their online platforms. Although they may pull information from different bureaus, and their scores might vary slightly from your FICO Score, they still offer insights into your credit situation. Enabling these free services often results in receiving alerts from your bank regarding changes to your credit report.

There are a number of factors card issuers take into account when approving you for a card, including your credit history. You’ll only get approved for many of the best travel cards if you have a score in the very good or exceptional range.