The number one reason a reader is wary of signing up for multiple credit cards at once is the perceived impact to his or her credit score. I have already laid out in some detail how to better understand your credit score and have also given you step-by-step instructions on how to cancel a credit card.
But how do the two connect? Can you really apply for 10, 20, even 30 cards in the next couple years, cancel them, and not have your score drop off a cliff?
Yes, you can. and here’s why.
Below you will see two charts outlining the history of my credit score. I began applying for dozens of cards a year in 2012 – which is why you see a slight dip in May 2012 in the first graph, shown below.
Now the second, more recent image from June 2015. As you can see below, despite applying to over 30 cards since the start of 2012, my credit score has risen past 800. This is considered a best-in-class credit score that grants you the cheapest rates available on loans.
I am not here to brag – only to tell a story. My story is this: if you follow the five rules I outline below, you can apply to as many credit cards as possible and not suffer long-term negative impact to your credit score.
Rule #1: Keep your oldest credit lines
Let me be frank: I am lucky. My parents signed me up for an “emergency” credit card in high school, knowing that it would also help build credit over time. This is my most important card since it has the longest age, which is a huge portion of your credit score.
But I am also opportunistic. When I learned about the average age of your credit score being one of the main reasons banks deny applications, I read something else very important – an authorized user (meaning you have a card on someone else’s account) will inherit that account’s credit history, good or bad.
Once I learned of this I immediately had my parents add me to their oldest credit line and just like that I inherited their credit line (that was older than me!). This “new” old line has been another essential part of my score.
One more note on average age of the accounts: while applying for a large number of cards will inevitably lower your average age, the impact to your score will be largely stabilized after several cards.
For example, if you have two cards with an average age of 10 years, two new applications would decrease that immediately to five years (20 years divided by four cards, instead of two). After eight new applications, the average age is two years.
But do you see a trend? Each new application impacts your average age, but by a lesser degree. Looking at the first chart again, you’ll see that my big dip in credit score happened in early 2012 after my first four applications or so. After that other factors begin improving your score as the average age stabilizes.
Rule #2: Add New Cards, Add Available Credit
This is the key factor that many do not realize actually improves your score. With every new approved card, you will have another credit line to add to your total available credit. A higher amount of credit available does two things to improve your score.
The first is relatively simple: credit bureaus and banks place an emphasis on people that can handle more credit. This makes sense intuitively – if you have $40,000 available across several cards, but still spend the normal $2,000 a month, that shows a level of responsibility when it comes to handling credit, especially when compared to the person who maxes out their single $2,000 credit line each month.
Banks want responsible customers who can handle multiple accounts and won’t default on their payments. Which is why, as shown below, customers with 22+ accounts get a higher grade than customers with under 5 accounts.
The second positive impact has to do with debt utilization, or the percentage of your available credit that you utilize in the form of debt. Again, this is not a complicated idea once you wrap your head around it – and it is shown graphically below.
For example, let’s say person A spends $2,000 a month with $40,000 of credit available. That means he or she is utilizing 5% of his total available credit ($2,000 debt balance divided by the available $40,000). Person B is maxing out his or her balance, so that is 100% debt utilized. Which looks better to you? (Hint: It isn’t B).
Now what if you took that $2,000 balance and applied it to $80,000 available credit? $120,000? As you can see, the higher credit available reduces your debt utilized if you spend as you normally do. This is how from early 2012 to present day my score has risen application after application.
Rule #3: Transfer credit lines when Possible
Canceling a credit card can be a daunting task at first glance, as I'm sure all of my readers have heard that canceling cards is a bad thing. But with the above two points in mind, you will realize that closing an account will not have the effect many perceive, especially when you keep the available credit line by transferring before closing it.
While not every bank allows you to do this, it is worth asking the bank representative up front when going through my step-by-step process on how to cancel a credit card.
By keeping the credit line, you decrease the number of accounts (helping average age of your accounts) but keep the same amount of available credit (helping with your total credit and debt utilization). When done right, canceling a card is actually a good thing.
Rule #4: Spread your applications out
The one trap many of my readers fall into is thinking that as long as their score is above 700, they are good to apply. This is one of the reasons I outlined the top five mistakes to avoid when applying for a new credit card.
Number three on that list is “applying too often or always at the same bank” (which lead to this section’s title). In my experience, following two simple concepts can minimize hard inquiries (what a bank will use during an application – too many of these is a bad thing).
- The first concept is spreading out applications by bank. There is no secret formula to follow for each bank, but my experiences and others in the community can paint a picture that will at least increase your chances of approval. If you have never gotten the card before, I recommend waiting a few months in between applications.
This means, for example, if you have applied to a couple Chase cards recently, I would wait about three months before trying any others with the bank. Or, even better, wait six months between Chase cards and in between try applying for a different bank offer. Since banks utilize different credit bureaus, this has the added benefit of spreading out your hard inquiries, thus increasing your approval odds.
The second concept is spreading out applications by time. When you have had a particular credit card before, things get a more complicated. This is because some credit cards are able to be “churned” – meaning you can apply for and receive the bonus as many times as you want, with conditions.
The condition is you must follow each banks required time window. Chase, for example, requires two years to pass in order to successfully receive a bonus again. Citibank can require as little as 8 days, depending on the product. Since these time windows are always changing, I recommend reading my credit card reviews or reaching out to me directly to receive the most up-to-date news prior to a churn.
Rule #5: Pay your balance in full, every time
The final recommendation is the most important and requires little explanation – all you need is time, effort and diligence. Having a history of on-time payments has the largest impact to a credit score. And even 99% made payments can drop your score – so make sure it is 100%.
Paying in full also keeps you from having to pay any interest, something that I never recommend doing in pursuit of free points and miles. I mean, they wouldn’t really be free then.
Let me repeat: don't get cute with this rule. Never miss a minimum payment and try to not carry any high balances from month-to-month.
The final word
And there you have it: an in-depth, personal account to dispel the notion that multiple credit cards will hurt your credit score. I hope you are persuaded, but if not feel free to send any questions my way before your next application.
By the way, if you want to leverage multiple credit cards into an endless stream of frequent flyer miles and hotel points, I recommend two things: find out your credit score on Credit Karma, then read my highly popular Getting Started Guide: 5 Steps To Use Credit Cards & Maximize Your Travels.