OK, so you followed the great advice in Credit Card Churning Post #1, and you have some credit history. But isn't there some catch? Opening up a lot of credit cards seems sketchy. Here's the list of things that go into your credit score, from most important to least important, and some essential tips:
IMPORTANT NOTE: Applying for a new line of credit, such as a new credit card, involves a hard inquiry. This means that a bank rings up one of those trustworthy bastions of liberty like Equifax and checks your official credit report to see whether to accept you. Hard inquiries ding your credit score. A "ding" means a temporary drop of just a few points, which generally bounces back after six months. HOWEVER, although the official credit score number bounces back after a few months, the hard inquiry remains on your credit report for two years. This can hurt you big time and get you rejected from getting new loans, such as a new credit card (meh, oh well) or a mortgage on your new home (OH CRAP). The general wisdom is to avoid churning if you're planning to get a big loan like a mortgage within two years.
Credit card churning tip #3: Avoid unnecessary hard inquiries, but getting rejected isn't the end of the world. If you apply for a new card and get accepted, the hard inquiry dings your credit score. If you apply for a new card and get rejected, the hard inquiry still dings your credit score. Nothing else happens, and the credit report doesn't actually say anywhere that you got rejected. It's just an issue of getting that ding on your credit score, and getting that hard inquiry stuck on your credit score for two years, but you don't even get a new credit card for your troubles.
What numbers go into your credit score?
tl; dr (too long; didn't read version): Opening multiple new credit cards actually significantly improves your credit score in the long term (2+ years in the future), but slightly hurts your credit score in the short term (under 2 years), so you should not open multiple cards if you need to get an important loan (like a mortgage or maybe student loans?) within the next two years. Opening one new card shouldn't hurt much.
1. Payment history. Are you paying off your debts on time? Yes? Good. Opening new credit cards has no effect on this, as long as you pay them off like you should. Just set up autopay and keep an eye on things to make sure your autopayments are going through, as sometimes they can take a month to kick in.
2. Percentage of credit used (lower is better). If you have only one card with a limit of $2,000 of credit each month, and you spend $1,900 each month, that's not good because you're using 95% of your available credit. Opening new credit cards actually helps your credit score in this category. If you have ten cards with a limit of $2,000 each (so a total of $20,000 available credit), and you still spend only $1,900 a month, now you're spending exactly the same but only using up under 10% of your available credit.
The weirdest part about this is that it seems to depend on what day you are checking your credit score vs. what day you pay your credit card bill; if you check your credit score on Monday and pay off your $1,900 bill on Tuesday, well, as of Monday, you have $1,900 in unpaid balances! Oh no! That hurts your score. But if you wait to check the score until the day after paying your balance, now you have $0 in unpaid balances! Wow, you must be so responsible! This is ridiculous but from everything I have ever read, that's just the way the cookie crumbles.
3. Average length of credit history. The longer your average credit history, the better. What this means is, if you have one card that is 5 years old, your average credit history age is 5 divided by 1, i.e. 5. But if you suddenly started churning and opened up 10 new cards in the past year, you now have 11 cards, 10 of which are under 1 year old, and your average credit history age is now only 1 year! (If you're having trouble visualizing the math, suffice to say that you have one old account, but the huge number of new accounts overwhelm it.) Opening new credit cards hurts. Over time, of course, opening new cards will eventually help because those new cards age and become old cards, but in the short term, this is the biggest problem for new churners if you don't have a long credit history.
This is the part of churning I have had the most trouble with. It seems like most churners are middle-aged rich guys with huge monthly budgets and immense salaries and seemingly endless credit history, with mortgages, new car payments, and credit cards from thirty years back, so as helpful as they are, sometimes their advice misses the mark and downplays real problems for people like me (and, presumably, you). I have been rejected from multiple cards simply because my average credit history is too young, despite perfect repayment history and a low percentage of credit used.
Credit card churning tip #4: If you read other churning guides (which you should!), they often advise you to apply for many cards at once (all in one day), and as much as one or two cards a month. Do not do this. The whole "applying for multiple cards in one day" trick almost never works, in my experience, and just got me a big pile of rejections, which really hurt my numerical score and my hard inquiry list. Too many cards in one day makes you look super suspicious, and honestly, it's reasonable for banks to block this, as it sure looks like identity theft. Applying for one new card each month can work at first, but it will bring down your average credit history age suuuper low if, like me, you only have a couple years of credit history to start with. If you have 20 years of credit history, then I guess you can probably get away with more.
4. Having a variety of credit types. Do you have credit cards, student loans, car payments, and a mortgage? If so, great! Having a lot of accounts, and a variety of accounts, is good for your credit score! If not, meh. Nothing you can do about this one, and it has only a small impact on your score. Opening new credit cards has no impact, or possibly a very small positive impact. You would think that taking out fewer loans and not having debt would be good, but apparently the banks say this is bad. Isn't that weird?
5. Hard inquiries in the past 2 years. Supposedly this only makes up about 10% of your numerical credit score, but I have found that it actually makes a big difference. Opening new credit cards hurts.
OK, so you aren't taking out any big important loans in the next two years, and you've got a nice beefy credit score above 730, and you're ready to roll! What card should you get first? Tune in next time to find out...
(Also this should be obvious, but I am not giving any like official legal financial advice, just sharing my own experiences and personal advice, friend to friend, pal to pal.)
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