opening credit cards

[nycguy567]

is there a drawback to opening (and being successfully granted) a credit card every 6 months? if i keep track of all credit cards and have them all autopaid through a bank account, are there other drawbacks?

[boosami]

I don't understand why you'd want to do this unless you are trying to build up from a non-existent credit history. I'm curious why you are interested in doing this.

Anyway, here's an answer from a credit score standpoint...

Credit inquiries--like the ones you get from applying for a credit card--drop your credit score a few points as soon as they hit your report. Within a few months, though, (given no other real changes to your report) your score typically recovers. However, the more inquiries you have on your report at once, the lower your overall score will be.

Most inquiries stay on your credit report for two years. If you consistently apply every six months for credit, you will have as many as 4 inquiries listed on your account at all times. Add on the occasional loan or other credit check inquiry and you'll probably be more like 6+ inquiries showing. Most people will tell you it's best to have two or fewer at any single time.

There is also such a think as having "too many" accounts, especially too many accounts with balances. However, it's an awfully high number. I have 25+ open credit card accounts (no balances) and have never had a problem with this. If you have more than that, you may start raising flags with FICO and getting your score dinged for it. I have heard ~30 is the upper limit for zero balances and ~10 for carried balances, but don't know how accurate that is. If you are doing this with zero balances, it can only account for as much as 10% of your FICO score (so not too significant). If you are doing it with carrying balances, it can account for up to 40% of your score!

Aside from FICO and credit reporting bureaus, banks often use your credit score in combination with other factors (like your income, amount of available credit, etc.) to determine if you will be granted a loan or mortgage. They might see too many accounts even if FICO does not, and refuse the loan. It depends on the bank, though, and it is entirely up to them whether or not to loan you money.

So, in summary...

Is applying for credit twice a year overkill? Yes, but it probably won't tank your score if you don't carry balances. If you have an established credit history, you should really only apply for credit when you need it.

[nycguy567]

well sometimes there are incentives for opening credit cards . is there a more technical source besides your guesses?

[Alex_Adviser]

Opening more personal credit cards does affect your credit rating, but it can have both negative and positive impacts. The more available credit you have and the less you've used of it, the higher your credit score. Having $10,000 of available credit but only using $1,000 of it at any given time gives you a credit-to-debt ratio of 10%, while having a card with a $1,000 limit which you routinely max out gives you a 100% credit-to-debt ratio. If you can open new cards without spending much on them, having more accounts can actually improve your credit score slightly.

The average ages of your accounts is another factor in determining your credit score, so adding new accounts can lower of your score. However, you can always close the new cards when you're done getting the bonus, and the average age of your accounts will go back to what it was before.

Also, your credit score gets dinged every time a lender does what is called a hard credit pull, meaning that they inquire about your credit in such a way that it shows up on your credit report.

[boosami]

well sometimes there are incentives for opening credit cards . is there a more technical source besides your guesses?

FICO tends to not give actual answers on topics like this because most of the time the answer is "it depends." They won't say how many inquiries are too many. However, they suggest this as a habit of people who have exceptional credit scores, verbatim: "Apply for and open new credit accounts only as needed" (Source 1 below).

Personally, as a person with already established credit, I wouldn't apply for new credit more than once a year. And I would only apply if I had a real reason requiring that new credit. Applying for credit cards just to get the $25 free gift card or whatever is typically not worth all the hassle or potential problems that come with it. The only time I'd recommend someone apply in regular periods is if they need to build credit rapidly from the ground up.

Resources:

• 1: Credit Inquiries: How Credit Checks Affect Your FICO Score - myFICO
• 2: What are inquiries and how do they affect my FICO score?

[Joan.of.the.Arch]

A remote possibility: The more credit cards you have the more likely you are to have a credit card or just its number stolen. (Happened to me years ago just via random number generation.) If you have a lot of cards that you are neither using nor monitoring, you might not notice the problem until much is charged on your account.

[wincrasher]

average age of your open accounts also is a big factor in scoring. Lots of new accounts will lower that average.

it really depends if you are going to need a high FICO for a major purpose. Planning on buying a new car or house in the near term? Is the inducement for the credit card, the free gift or the airline miles, or whatever worth it?

[nycguy567]

Opening more personal credit cards does affect your credit rating, but it can have both negative and positive impacts. The more available credit you have and the less you've used of it, the higher your credit score. Having $10,000 of available credit but only using $1,000 of it at any given time gives you a credit-to-debt ratio of 10%, while having a card with a $1,000 limit which you routinely max out gives you a 100% credit-to-debt ratio. If you can open new cards without spending much on them, having more accounts can actually improve your credit score slightly.

The average ages of your accounts is another factor in determining your credit score, so adding new accounts can lower of your score. However, you can always close the new cards when you're done getting the bonus, and the average age of your accounts will go back to what it was before.

Also, your credit score gets dinged every time a lender does what is called a hard credit pull, meaning that they inquire about your credit in such a way that it shows up on your credit report.

a hard hit lowers the scores if the applicant is denied the credit. the hard hit will increase if the credit is granted.

How Does Applying For A Credit Card Hurt Me? | Credit Cards Credit Score

"Your score will rise fairly quickly if your credit application gets approved because the additional line of credit will give you a boost. You will get a boost because your ‘debt is to available credit’ ratio will also improve. Those whose scores are hit the worst are the ones whose credit application gets rejected. A rejected application automatically causes their score to go down. Then, once their application has been rejected the first time, they will usually apply again thereby reducing their score even further and raising the odds that they will get rejected again."

[boosami]

"Your score will rise fairly quickly if your credit application gets approved because the additional line of credit will give you a boost. You will get a boost because your ‘debt is to available credit’ ratio will also improve. Those whose scores are hit the worst are the ones whose credit application gets rejected. A rejected application automatically causes their score to go down. Then, once their application has been rejected the first time, they will usually apply again thereby reducing their score even further and raising the odds that they will get rejected again."

An application being rejected does not hurt your credit in itself. There is nothing to indicate if an inquiry was accepted, rejected, or did not have to do with getting a credit account at all on your credit report. The inquiry itself, no matter what the source or outcome, is what drops the score temporarily. It is true that a new account will decrease your overall utilization ratio, but it's not worth opening a ton of new accounts just because of that. You'll run into a wall where you will start to be rejected because you have applied for too many new accounts in the past 2 years. Then, when you actually need credit you might not be able to get it.

Stick to reliable sources like Save Money with a Good FICO Credit Score: Credit Education at myFICO.