The Effect of Credit Card Signups on Credit Scores

Last week I mentioned that you’d be seeing some upcoming credit card posts as I planned my next churn — signing up for cards with lucrative signup bonuses, something I do about every three months. With my own thinking in the mix I’d be sharing it.

I’ve gotten distracted a bit, by work, by travel, and a conference. And I’ve spent my credit card energies on the Chase Sapphire Preferred card.

It’s the most lucrative card bonus generally available at the moment in my opinion (requires $3000 in spend within 3 months, no fee the first year). So it will go in at #1 on the list of best card bonuses available at the moment…. if it’s still around by the time I write the darned post!

But before getting into what cards are available for bonuses — and the banks do really seem to want us to fly in premium classes of service, almost for free — I thought I’d take a moment and dive into one of the most-asked questions about credit card churning, which is how does it affect your credit score, and of course the implied followup, do you care?

I’ve been churning credt cards since long before it was cool and I still have an excellent credit score, it was nearly 800 FICO on the three major credit bureaus when I went to get my mortgage. In part because of churning, rather than in spite of it.

Each time you request credit, and your credit is pulled as a result, your score usually dips a little bit but just on the credit bureau that was pulled. So if an Experian credit report was pulled, the inquiry only shows up at Experian. Requests for credit suggest you might need credit, and lots of requests for credit can be a signal of trouble. But this is a small part of your score.

The average age of your accounts count, even for a period of time your cancelled accounts, so lots of new accounts can shorten that average age.

But on the flip side, having more available and unused credit will help your score – because one important factor is your utilization percentage. We’re not talking how much of a balance you revolve or don’t pay off in a month, rather how much of your available credit you burn through in a month. So if you have $5000 in available credit, and you run up $2000 in charges, you’re using 40% of your total available. If you run up $2000 in charges and have $20,000 in available credit you are only using 10% of what’s available to you — look how responsible you are with credit!

Applying for more and more cards over time has certainly helped with my total available credit, and thus my credit score. So there’s pluses and minuses even to your credit score.

And in fact when I cancel cards, I often try to retain the credit. Chase generally lets you move your available credit from one card (the one you’re going to get rid of before a fee hits) onto another card (that you’re keeping). American Express has brought back the ability to move around your credit between cards online.

I admit I don’t even bother checking my credit anymore before I churn cards. I’m not doing 10 at a time. I’m not balancing my inquiries across the credit bureaus, there aren’t enough offers that I either haven’t had or can get again in the near term that I have that luxury. So I’m just balancing my card applications across banks. I’ll try to apply for one card from each of the co-branded issuing banks with each churn, subject to decent offers being available

The real hardcore folks at the churning game will manage the inquiries on each credit bureau, there are forums over at Credit Boards where people list which bank runs credit through which bureau in each state. So if you have too many inquiries on one bureau you can apply only to banks that will pull your credit from another one.

I don’t get rejected from cards, my credit is good, and I don’t have a major purchase like a house (or a refinance) on the horizon. So I don’t even monitor my credit score closely, I just do irregular housekeeping to make sure nothing is on my credit report that shouldn’t be by mistake.

Credit inquiries also don’t stay on your report more than a couple of years, they have a limited time in which they’ll even effect your score before aging off. For me, the only area where my score even matters much — given that I do have high scores, it would matter more than the sub-700 level for sure — is in the housing market. A score that forced up a mortgage rate wouldn’t be worth the benefit of card signup bonuses. So even in my case, where I was nowhere near that threshold, I took a breather from card churning for the year (to some extent) and six months (much more so) leading up to my mortgage.

But a perfect credit score doesn’t really help you. If you have a 760 FICO you’ll qualify for the best mortgage rates. An 800 or higher score won’t get you better rates. So if your score is 800, you’re not applying for enough cards, your credit score isn’t working for you with card signup bonuses.

Now, credit card churning is only a game available for the most part to folks with good credit scores, so if you don’t know whether that’s you then you may want to check before diving in.

I’m a fan of Credit Karma and Credit Sesame (the latter of which offers a very small referral bonus to me), though as I say I don’t do this religiously and don’t keep tabs on the best offers for credit monitoring.

This game, too, is only for folks who pay off their balances each month. Otherwise the most important thing is getting the lowest interest rate possible, back in October I wrote about 0% balance transfer offers.

Update: the Chase Sapphire Preferred card bonus is now 40,000 points.