I have to admit that I'm a bit of a sucker for free stuff. Especially when it comes with $ signs in front of it.
The latest that arrived in our mailbox came from a local bank that was offering a $250 bonus if you spent $250 in your first 60 days of opening the account. This bank has run similar offers in the past – but nothing this large (and so relatively easy to achieve).
I had a history with this particular bank as it was the first bank I'd ever gotten an account with. They seemed to be going through a new branding initiative and trying to get more customers in their doors.
So, after a little hemming and hawing I went ahead and opened an account.
Is credit card / bank opening bad for your credit score?
This is a question that I've tried to answer before at the site – and have gotten differing thoughts. I know for me, opening of credit accounts and filling out banking applications have not significantly affected my credit score.
Madison at MyDollarPlan does quarterly credit card application “sprees“ where she routinely gets over $1k with her sign-ups. I don't think I've seen anyone in the personal finance sphere go at quite like she does.
Whatever your thoughts are on the practice, here's a few things to be aware of if you decide to spurn or spree :
- Know your credit score. If you don't have a good score – it's possible you may not even get accepted for a credit card / account. I'd focus on being faithful with what you have and paying down debt.
- Check your utilization percentage. According to Madison, you want to make sure all your current cards are reporting a utilization of less than 89%.
- Limit your sign-ups. In an earlier article on credit card churning, Alice from CreditNet.com stated that it's important to keep your applications to a minimum as it could adversely affect your scores. Some state that a new account opening every 6 months or so might not pose a threat to your history.
- What's your end goal? For me, I use money that I would already be applying to other bills towards bonus requirements. So, I'm really not spending more than I would just to get an extra couple hundred dollars.
- How will you stay “on track”. Another important consideration for signing up to new accounts is your current financial status. I've found that in signing up for this latest account, it's made things a little more complicated to keep track of.
So in answer to the above question, yes, opening new accounts to obtain credit could ding your credit scores. Especially if they are done frequently.
What do you think?
I guess when it rains, it pours. Just the other day, I received a new offer from my current bank to apply for a card that has cash back and is offering $200 for spending $500 within 90 days of opening this account (they must all know when you're “in the hunt”). It's another tempting offer, so we'll see.
We typically only use credit cards for larger purchases and then pay them off within the month. So, please don't hear churning (or whatever you wish to call it) being endorsed at the site. But it is something where a responsible user could get a few extra bucks each month doing what you'd normally do when you pay bills.
Is this something that you employ in your finances and why or why not? Love to hear your thoughts.
6 Comments
As the current Mr. Thrifty Guy for 2017, I feel compelled to put my 2 cents in. (Wow 2 cents really is thrifty) Credit card sign up bonuses was one of the main ways I made additional income the past 2 years. Over 13,000 in fact. My experience is that it does not affect your credit score very much at all by applying for multiple sign up bonuses. You might get a drop of 2 points that month give or take. The more important credit categories you should watch is the percentage of use, on time payments, and derogatory comments. If these 3 are good the number of hard inquires doesn’t hold much weight. Still, there are a few critical things you need to do that will improve your odds for success. First, don’t apply for cards you can’t get. You are wasting a hard pull on your credit if you are turned down. Sites like creditkarma can advise you on which cards you likely will qualify for. Second, pick the bonuses with the best value. It’s not that hard to find one that will give a 200 dollar bonus for just spending 500 in three months. Have your spouse sign up as well and double your profits! Third, only charge items on the card to get your bonus that you would have bought anyway! It makes no sense to go out and buy a 1,000 TV just to get a bonus. Instead, charge things like your food, cable, internet, insurance, cell phones etc. You can even charge your largest expense, your house payment, with a little extra work by using a site called Plastiq. It will cost you about 14 bucks but if it gets you a big bonus it’s well worth it. As far as keeping track of all of this, I just use a spreadsheet. Then I know how much I have to spend to get the bonus, how much the bonus is, what the deadline is to meet the spending requirement, and when the credit card payment is due. It is work, make no mistake about that, but the rewards can be impressive. I’ve received bonuses of as little as 100 bucks and as much as 700 depending on the card. I admit this strategy is not for everyone, but if you keep track of everything, stay disciplined, and plan carefully, you can make thousands of extra dollars every year and hone your thrifty skills at the same time!
Excellent Keith. Very glad to get your input on this given your hefty profits from bonuses and current TGOTY status!
This is also something I’m looking at right now. I’m in the middle of qualifying for a house, so haven’t used my credit for some time, but I do want to up my credit cards/limit. I have excellent credit and always pay off monthly but have kept only 1 card.
Getting those bonuses is a big incentive for me and since i’ll be waiting until after I get the house, any ding won’t matter. Two more cards is my current goal.
Hope your qualifying goes well Kay!
I’m willing to take the small ding for the bonus points, but on occasion and when I know I am not planning on applying for larger loans (read: house). Prior to buying our house, we did not open new lines of credit because we wanted to make sure we secured a lower interest rate. The credit score is less important to us now and we are willing to take a few ups and downs for responsible credit card opening :)
Good point about how the importance of a credit score varies at different seasons of life. If you aren’t taking on any new debt – why does it matter? (Suppose insurance important, ie)