There are so many strategies in Points Banking that it can be hard to keep track. One of the strategies is to apply for multiple credit cards to get the lucrative sign up bonuses. With an all you can eat buffet of credit card sign up bonuses out there, you may be wondering if going for seconds, thirds, or more will affect your credit score.
Let’s find out.
Before we see how multiple cards affect your credit score, first let’s see what impact does applying for credit cards have on your credit score.
There are a lot of misconceptions about how credit scores work. There are so many credit myths floating around and it may be hard to decipher what’s true or not. Most of the people that I know that aren’t involved in this hobby are convinced that if you apply for more than 1 credit card, your credit score is ruined.
As I write this post, I currently have 12 open travel rewards credit cards. To most people, this is shocking. The first reaction to this may be “Aren’t you worried about what all of those cards will do to your credit score?”
Honestly, No. I’m not worried about what they do to my score. Instead I am enjoying how they have increased my credit score. Since starting on my Points Banking journey, I have increased my credit score over 100 points and have a score above 800.
“I thought multiple cards damage your credit score!”
important note: that irresponsible spending will negate all of the benefits that rewards cards can do for you. Credit cards should be looked at as tools to earn points and miles. Don’t fall into the trap of spending more than you have.
Let’s dive deeper and see how it works:
- 35% of your score is made up of your payment history
- 30% of your score is your credit utilization
- 15% of your score is your credit history
- 10% of your score is made up of the types of credit you use
- 10% of your score is your request for new credit
When you apply for a new credit card you get hit with an inquiry, which falls in the category of requests for new credit. You will temporarily be dinged 2-3 points on your credit score, though that falls off within two years.
At the same time, the other components of your credit score can improve as a result of applying for a credit card. This means your credit score can actually go up as a result of applying for more cards. For example, 30% of your credit score is made up of your credit utilization, which is the amount of your available credit you’re using. Also known as credit to debt ratio.
To keep the numbers simple, If you have one credit card with a $10,000 credit line and spend $8,000 on it per month, you are utilizing 80% of your credit.
In another scenario, if you had 10 credit cards with $100,000 of credit line but were still only carrying a balance of $8,000 per month, your credit utilization would be only 8%.
When you are requesting more credit through a new application, the bank will think your 80% credit utilization is more of a risk than 8%.
When utilizing only a small percentage of your credit line, you are you much lower risk and have a higher chance of getting your application approved.
Almost two-thirds (65%) of your FICO score is determined by factors that can actually be enhanced with additional credit card accounts.
What are your thoughts on having multiple credit cards?