Archive for the 'Credit Cards' Category
Monday, February 6th, 2012
New, improved offer! The Slate Card from Chase is now available with 0% APR on both balance transfers and purchases for 15 months, and the best part: NO balance transfer fee! There are different flavors of this card, but you should see it mentioned right at the top of this specific offer link. You can literally borrow money for free and pay it back in 15 months with no interest (keeping in mind you’ll still need to satisfy the minimum payment each month until then). No annual fee.
This is a limited time offer, and very rare these days to find a no balance transfer fee 0% APR offer that is available to all (as opposed to being targeted only to specific customers). You can verify in the Pricing & Terms section of the application, down in the Fees box:
None on transfers made within 30 days of account opening. All other transfers: Either $5 or 3% of the amount of each transfer, whichever is greater.
Make sure you initiate that balance transfer within the first 30 days.
Lower your interest on balances!
This is a great opportunity for those people with good to excellent credit but are still working hard to lower their debt payments with no fees at all, as now you can have all your money applied directly into cutting down your principal instead of having it go towards interest. That way, your balance owed will go down that much faster.
Chase Blueprint is a free feature on select cards that lets you break down your balances into things that you want to pay in full each month and bigger purchases that you wish to pay off over time.
Earn interest with the money?
It’s been a while since I did any sort of credit card arbitrage, but you can still get some pretty high rates with certain rewards checking accounts. For example, Consumer’s Credit Union has their Free Rewards Checking account paying 4.09% APY interest on balances up to $10,000 if you make 12 debit card purchases + one billpay per month. The rate is even guaranteed at least through June 30, 2012. You can join with a $5 one-time fee, even integrated into their online application:
All credit unions have a common bond and their members need to be associated with it in order to join the credit union. At Consumers Credit Union (CCU), our common bond is the Consumers Cooperative Association (CCA). You join CCA by paying a one-time fee of $5.00.
Another good option is U.S. Savings Bonds. Series I bonds bought right now will earn 3.06% for the first six months, and then an unknown rate based on ongoing inflation after that. Even with zero inflation, it will still earn more than any 1-year bank CD… and I really don’t see zero inflation.
If you wish to get cash from this balance transfer offer without it being classified as a “cash advance”, one idea is to ask for the balance transfer as a check or electronically transferred to your bank account. You may need to call them for this. Another option is to request money to be transferred to other non-Chase credit cards that you have, ideally already with a balance on them. This will create a negative balance, after which you request a refund check be sent to you. I know that Citibank had a feature on their site to request a credit balance refund, which only showed up when you have a negative balance.
Slate Card from Chase with No Balance Transfer Fee application link
Posted in Credit Cards, Deals & Offers | 15 Comments »
Saturday, January 28th, 2012
If you’ve been thinking about a 0% balance transfer, here is some news that may help you make your decisions. This is the best info that I have, you can judge me on the accuracy in the future. 
As of right now both the Citi Platinum Select Mastercard and the Citi Diamond Preferred Mastercard have a 0% APR on balance transfers for 18 months and on purchases for 18 months. Balance transfer fee is 3% with a $5 minimum. No annual fee.
In addition, the Discover More Card – No Balance Transfer Fee has 0% APR for 12 months but with no balance transfer fee. No annual fee. My unofficial sources tell me that this will be extended for the rest of February, but after that it will likely end. This matches historical patterns that this is a limited-time post-holiday promotion. More details on the promo here.
As always, these cards should be used as a tool to lower the interest rate on your existing debt to accelerate payoff. If you can pay it off in the proper timeframe, some people have paid off their student loans. Consumer debt is kryptonite to financial freedom.
Posted in Credit Cards, Deals & Offers | 1 Comment »
Wednesday, January 25th, 2012
Some of you may not like the idea of trying out a new credit card with an annual fee and possibly having to cancel the card later (even if comes with a big sign-up bonus!), though the effect on your credit score is a lot less than many media articles would lead you to believe. Here are a couple of cards with $200 sign-up bonuses and minimal requirements (indeed, they would have been rock stars in 2008 and 2009) – but are also everyday “keeper” cards with no annual fee. I’ve had both of them for years.
Chase Freedom Visa – $200 Bonus
- $200 bonus cash back after spending just $500 in first 3 months.
- Earn 5% cash back on up to $1,500 spend on rotating categories each quarter. 1st quarter 2012 categories are Amazon.com and gas stations.
- Earn 1% cash back on everything else. There is no limit on the 1% cash back.
- Instead of cash, you can also redeem points at Ultimate Rewards site.
- No annual fee.
Citi Dividend Platinum Select Visa – $200 Bonus
- $200 bonus cash back after spending just $500 in first 3 months.
- Earn 5% cash back on rotating categories each quarter. 1st quarter 2012 categories are fitness clubs, health care, and utilities (including electricity, gas, water, garbage, cable, phone, cell phone).
- Earn 1% cash back on everything else. There is no limit on the 5% categories, but instead there is an overall limit of $300 total cash back.
- No annual fee.
Which one is better?
Both offer a $200 bonus after spending $500 on the card for anything (40% back). Both offer 5% back on select categories, and the good thing is you can benefit from having both cards since their categories often don’t overlap. Both require you to “activate” the 5% online each quarter, which is a bit annoying but only takes a minute. Both cap their rewards at similar levels (5% of $1,500 is $75 per quarter = $300 per year). Both have no tiers on their 1% back on everything else. The Chase Freedom has no expiration of rewards as long as the account is open, whereas the Citi Dividend rewards do not expire as long as you have activity once every 12 months. Last I checked, the minimum redemption amount was $20 for Chase, $50 for Citi. Overall, they are both very similar in my opinion.
However… in my credit card survey a few weeks ago with over 3,000 reader responses, there was an open-ended question asking which card was the “best credit card on the market today”. The #1 most popular answer was the Chase Freedom card, beating out everyone including travel cards. Where was the Citi Dividend card? Not even in the top 20. The people have spoken, but I’m really not sure why! Better commercials?
Posted in Credit Cards, Deals & Offers | 30 Comments »
Tuesday, January 24th, 2012
(Update: That was quick, looks like they are sold out. Perhaps they will replenish later.)
If you have some American Express Membership Rewards points lying around, perhaps from the American Express Platinum or the AmEx Rewards Premier Gold, then is for you. Reader David reports that right now you can get a $25 Gap gift card for 1,250 points when you redeem by January 29, 2012, which is 50% less than the normal exchange rate for gift cards ($25 = 2500 points). Supplies are limited.
Even if you don’t like Gap clothes, PlasticJungle.com and others from my gift card sellback website comparison will give you up to $83 for a $100 Gap gift card. That works out to a value of 1.66 cents per point (10,000 points = $166), which is much better than any other direct cash-out option, although some people may be able to get better value by redeeming airline miles for award flights.
Posted in Credit Cards, Deals & Offers | 4 Comments »
Friday, January 20th, 2012
Looking back, 2011 was a great year for credit card sign-up incentives. The major issuers rolled out some new cards and features and offered up big bonuses to get you to try them out. By picking up the tastiest offers, you could have reaped thousands of dollars in bonuses even with average incomes and without spending more than normal. If you have good to excellent credit, why not earn some money with it? Here’s what Mrs. MMB and I decided to jump on last year:
Chase Sapphire Preferred: $500 cash or $625 in travel
The Chase Sapphire Preferred Card gives you 50,000 bonus points after you spend $3,000 in purchases within the first 3 months. With this new card, Chase is basically trying to make a premium card that competes with American Express, with their Ultimate Rewards rivaling Membership Rewards. (It’s metal and heavy, too!) For example, you can now transfer Ultimate Rewards points to Continental/United, Southwest, British Airways, Hyatt, and Marriott. This the same system the Chase Freedom card uses now as well.
But my favorite features are the cash options and the 25% bonus towards travel. 10,000 points = $100 cash = $125 towards travel at no markup (same price as Expedia, Travelocity, etc). You can mix points and cash however you like, which means 50k points = $625 towards any airfare or hotel nights. No annual fee the first year, $95 after that. For more details, please see my Chase Sapphire Preferred review post.
Chase Ink Bold: $500 cash or $625 in travel
The small business version of the Chase Sapphire, this card also offers a huge sign-up bonus. The Chase Ink Bold with Ultimate Rewards gives you 50,000 Ultimate Rewards points after spending $5,000 in the first 3 months your account is open. For more details, please see my Chase Ink Bold review post, including details on what constitutes a small business.
Citi ThankYou Premier: $500 in gift card or $665 in airfare
The Citi ThankYou Premier Card is another travel-oriented premium credit card gives you 50,000 ThankYou points after spending $2,500 within 3 months of account opening. The special feature here is that it offers you a 33% premium on when used towards travel. That means those 50,000 ThankYou points can be redeemed for $665 in airfare. They also have their own airfare portal with the same prices as Expedia, and you can also mix and match cash and points if you don’t have enough points to pay for the entire amount. For more details, please see my Citi ThankYou Premier review post. (Now expired)
Delta Gold SkyMiles American Express: 30,000 miles + $99 Companion voucher
The Delta Gold SkyMiles American Express is not a great deal for everyone, but it works out very well for us. (It’s actually our second card, I had one previously.) My wife and I both fly cross-country together to a city primarily served by Delta at least once a year to visit the parents. The sign-up incentive is pretty good – 30,000 Skymiles after just $500 in purchases within 3 months. More importantly, the card comes with a buy-one-get-one-for-$99 companion voucher that saved us $250+ this year since it’s usually during a holiday. We’ve used this voucher before, and the prices are comparable to online travel engines, but you do get stuck with the taxes of $50 or so. The annual fee is free the first year, and $95 after that. You also get a free checked bag on every flight for you and up to 8 travel companions (so one card gets us two free bags as a couple, a $25 value per person each roundtrip). The total one-year value of this card is at least $600 if value a mile at a penny.
Grand total: $625 + $625 + $665 + $600 = $2,515
That’s just for four cards from three different issuers, which is far less than the most cards I’ve applied for in a year on my own. This means a couple could make over $5,000, which is 10% of the 2009 US median household income of $50,221 per US Census. As for us, we plan on making good use of this money to cover future airfare and hotel expenses. This total also does not include any earnings from cash-back rewards credit cards.
If we include the Chase Ink Bold, the required spending total was $11,000. Exclude the Ink Bold, and it goes down to $6,000, which if you use time-shifting techniques like pre-paying bills such as insurance/utilities or buying gift cards for groceries/gas, works out to a reasonable $500 per month. That’s well within our normal spending anyway.
Honorable mentions go out to three other cards:
- The Chase British Airways 100,000 miles offer came back in 2011 (now expired), but both my wife and I already jumped on it previously and have already used it for a luxurious business-class trip around Europe.
- The Southwest Airlines card offered up 50,000 points (also expired) which was good for over $800 in Wanna Get Away airfare after just one purchase of any amount. The current offer is 25,000 points for a still-respectable $416 in airfare. We don’t fly Southwest all that often, so we passed on this card this year.
- The Hyatt Card offers two free nights at any Hyatt in the world after any first purchase, which includes some rather swank hotels. There is a $75 annual fee. My sister got this card and we were pretty close to applying, but we wanted to hold off until we had firm travel plans since I believe you have a certain time to redeem.
My psychic powers tell me that some of you are wondering about this 
, so here’s the answer: How Opening and Closing Credit Card Accounts Affects Your Credit Score.
Posted in Credit Cards, Deals & Offers | 31 Comments »
Monday, January 9th, 2012
Update 1/9/12: Reader CC writes in with her success story, which differs from some previous reports of a one Discover card at a time limit. Please let me know if you have a different experience. I forget to add before – if you apply for the card and don’t get the credit line you want, call them up and tell them you want to do a $X,XXX balance transfer and they may work to accomodate you.
A few updates- I called Discover and they changed the policies again
1) you can have more than 1 credit card
2) You have to open a new card to get the promo they won’t apply it to the old one.
3)If you call and speak to a rep and give them a balance to transfer they will recalculate the credit line
4) They will let you transfer the old credit line to the new one ie I had a $7.3K balance on the old one so they left it open with $500 and gave me a new card with a $7K balance. I was able to keep my 5 yrs of credit history with the 1st card active. I’ll probably transfer the line back to the original place in a yr.
5) I just saved a year of interest on my Citibank student loans for $6,550 with 15 minutes of work
Back for 2012! Limited-time only. Just in time for some New Year debt-busting action, Discover has brought back the Discover More Card with No Balance Transfer Fee, offering 0% intro APR on both balance transfers and purchases for 12 months. You can literally borrow money for free and pay it back in 12 months (keeping in mind you’ll still need to satisfy the minimum payment each month until then). Use this opportunity to lower your interest rates and make every cent you pay go towards shrinking that principal. There are different versions of this card, so please use specific application link. No annual fee.
When you see the application, be sure to scroll down to the “Important Information” and verify that you are getting 0% for 12 months and no balance transfer fee. You should see the following text at the top under “Interest Rates and Interest Charges”:
APR for Balance Transfers: 0% intro APR for 12 months from date of first transfer, for transfers under this offer that post to your account by July 10, 2012.
And then the following a bit lower under “Fees”:
Transaction Fees * Balance Transfer – Intro fee of $0 for transfers that post to your account by 8/10/2012 with the 0% intro APR balance transfer offer described above. After that, 3% of the amount of each transfer.
Application Quick Tips
In order to get the highest credit limit possible, be sure to maximize your reported income as much as you can legitimately. You can no longer include the income of other people living with you, but do include things like freelance income, overtime, rental income, interest and dividend income, alimony, child support, etc.
If you wish to get cash directly from this balance transfer offer without it being classified as a “cash advance”, one tip is to request money to be transferred to other non-Discover credit cards that you have. This will create a negative balance, after which you request a refund check be sent to you. Citibank and American Express are recommended for this because they have automatic features on their websites to request a credit balance refund.
Arbitrage Opportunities?
Don’t have higher interest debt you wish to refinance? Really, the only thing I could see buying with this 0% money would be a US Savings I Bond that will earn you 3.06% for the first six months, and then a different rate based on inflation for the next 6 months. You can buy $5,000 in electronic bonds per person per year, and another $5,000 in paper bonds if you use your tax refund ($20k total for a couple).
Offer Comparison
Now, the Slate Card from Chase currently has a similar offer going, also 0% APR for 15 months with no balance transfer fee. The good thing about Discover is that you can transfer balances on a Chase card to Discover, while you can’t transfer existing Chase balances to another Chase card. Other than that, why not take advantage of both?
Discover More Card with No Balance Transfer Fee application link
Posted in Credit Cards, Deals & Offers | 43 Comments »
Thursday, January 5th, 2012
It’s 2012! Here’s another step to a financial check-up. You probably know about AnnualCreditReport.com for free credit reports. But what about your credit score? If you want some relative comparison of your creditworthiness, here is a compilation of five different ways to grab that credit score for free without the hassle of annoying trial offers. I repeat: No free trial membership required, no credit card number required, nothing to cancel.
Remember, everyone has three credit scores, one from each of the three major credit bureaus: Experian, Equifax, TransUnion.
Credit Sesame
Every month, Credit Sesame can offer you a credit score based on your Experian credit report. They also offer tips to improve your score and qualify for a mortgage. Here’s a screenshot of my current credit score.
CreditKarma
CreditKarma.com is an ad-supported site that offers you the ability to check your credit score daily, called a Transrisk score, based on your TransUnion credit report. The score range is the same as FICO, from 300-850. You don’t get your credit report details, but you do get a few tips on what recent changes to your credit report have impacted your score.
Equifax Credit Score Card
The Equifax Credit Score Card comes directly from Equifax and provides a free credit score range of Low (280-559), Below Average (560-659), Average (660-724), Above Average (725-759), and High (760-850). It’s called the Equifax Risk Score. FICO has a range of 300-850, and this range is 280-850 so you don’t really have to do any scaling. It doesn’t provide any specific data from your Equifax credit report, but it does include a short summary of any negative factors that you may have on your report.
Prosper Person-to-Person Lending
Prosper Lending provides a free credit grade for prospective borrowers, based on your Experian credit data. If you don’t actually finalize the application for the loan, they will not check your credit. They do offer some good rates on personal loans, if you are looking to consolidate credit card debts. Here’s a partial screenshot of my profile:
LendingClub Person-to-Person Lending
Similar to Prosper, if you start an application to become a borrower at LendingClub.com they will check your credit on your behalf to find out what rate they will charge you. Instead of a numerical score, you will get a grade like “A2″ or “B3″. Then you can use the table below to determine your credit score range. For example, A2 would indicate a score range of 747-769. It is also based on your TransUnion credit report.
You will need to provide your personal information and Social Security number to these companies, naturally, so be comfortable with that. None of these methods by themselves will affect your credit score as you are requesting them for yourself.
Posted in Credit Cards, Debt | 72 Comments »
Monday, January 2nd, 2012
Who doesn’t like cash back? The following credit cards offer a hefty 5% cash back on rewards, but only in certain categories that rotate each quarter. Even though this may not seem like much, by keeping track of their promotions and using different cards smartly, I can easily rack up hundreds of dollars in additional rewards per year without otherwise changing my spending habits. None of these have an annual fee.
Here’s an update for the offers during the first quarter of 2012. Pretty good variety this quarter. If you had all three of these, you could put up to $1,500 of gas on the Discover, get 5% back on all your Amazon.com purchases from the Chase Freedom, and get 5% back on $1,500 in electricity, gas, water, garbage, cable TV, and cell phone bills from Citi Dividend.
Chase Freedom Visa – $200 Bonus Cash Back
Reward categories change quarterly.
From January 1 to March 31, you can earn 5% cash back on up to $1,500 spent in the following categories:
You must enroll each quarter at ChaseBonus.com, but it’s very quick. All other purchases earn 1% back, with no tiers or expiration of rewards. Currently, the Chase Freedom Visa has a promotion offering a $200 bonus cashback if you sign up and make just $500 in purchases in your first three months.
Citi® Dividend Platinum Select® Visa® Card – $100 Cash Back
Reward categories change quarterly. From January 1 to March 31, you can earn 5% cash back on
- Fitness club
- Health care
- Utilities
Health care is defined as merchants that provide examination, diagnosis and treatment of health-related conditions and includes services by licensed physicians or dentists, facilities that aid in diagnosis or treatment, and devices or corrective equipment for such treatment. Fitness clubs are defined as merchants that operate sports and recreation facilities requiring membership. Utilities are defined as providers of electric, gas power, water supply and refuse services, cable and satellite television and radio services, and wireless/telecommunications services.
After you get your card, you must enroll by logging into your account online or calling 1-800-231-0891. There is no cap on the 5% back, except for the $300 overall cap on all dividend rewards annually. All other purchases do earn a standard 1% with no tiers, and rewards do not expire as long as you have activity once every 12 months. Currently, the Citi Dividend Platinum Select has a promotion offering a $100 bonus cashback if you sign up and make just $500 in purchases in your first three months.
The Discover More Card
Reward categories change quarterly. From January 1 to March 31, you can earn 5% cash back on up to $1,500 spent in the following categories:
- Gas Stations
- Museums
- Movies
You must enroll online to activate the rewards each quarter. Discover card has a tiered cashback rate on other purchases (1% unlimited Cashback Bonus on purchases after your total annual purchases exceed $3000; purchases that are part of your first $3000 earn .25%.).
Don’t forget to also check out my list of the best cash back rewards credit cards, which include an American Express that gives 6% back on groceries and PenFed gas that gives 5% back on gas.
Posted in Credit Cards, Deals & Offers | 6 Comments »
Friday, December 23rd, 2011
Update: The following Citi holiday promotion has ended. If you’re in the market for a top notch balance transfer credit card, check out our list of the best credit cards offering a 0% intro APR on balance transfers.
Here’s another nice 0% interest balance transfer offer – it is a holiday promotion, but any time is a good time to pay down your balances even faster with less interest! The Citi Diamond Preferred MasterCard now gives you 0% APR for 18 months on both balance transfers and purchases. Now, the balance transfer fee is 3% (minimum $5). This means that you could transfer a balance of up to $6,650 and still have your transfer fee completely covered. Transfer less than that, say $5,000, and you’d actually net yourself $50. Remember, purchases are at 0% APR as well. No annual fee.
Comparing this with the other best no fee 0% APR balance transfer offers, the Slate from Chase Card mentioned earlier has no balance transfer fee at all, for a period of 15 months. If your balances are less than or around $7,000 you would get six more months at 0% with the Diamond Preferred over the Slate. If your balances are higher and/or you plan on paying them offer within a year, then the Slate would work out better.
Which reminds me… Citibank balance transfers are the easiest to get in the form of a check sent directly to you. I just confirmed in my Citi account and here is a screenshot to show what to look for.
*Online purchases are coded differently than physical locations where you swipe your card – even paying your cable bill online or auto insurance online counts.
Posted in Credit Cards, Deals & Offers | 15 Comments »
Wednesday, December 21st, 2011
UPDATE: The Citi ThankYou Premier Card $500 bonus is now expired.
The Citi ThankYou Premier Card is now offering 50,000 bonus ThankYou Points after $2,500 in purchases within 3 months of account opening. That is enough to redeem for $500 in gift cards or $665 in airfare when you redeem through their ThankYou Travel Center. There is no annual fee for the first year, $125 after that. Let’s take a closer look at how this breaks down.
$500 in Gift Cards
You can view your redemption options at ThankYou.com. In general, it takes 10,000 ThankYou (TY) points to redeem for a $100 gift card to retailers like Gap, Banana Republic, Barnes & Noble, Bath and Body Works, Bed Bath & Beyond, Cabelas, CVS Pharmacy, Kohl’s, Land’s End, LL Bean, Sears, Lowe’s, Home Depot, Staples, and Walmart. So with 50,000 TY points, you could get five $100 gift cards from different stores.
Want something closer to cash? For a check mailed to you, it costs 8,000 points for $50. For a statement credit, it’s 7,500 points for $75. A check mailed towards your mortgage payment or student loan (made out to your lender) costs 7,500 points for $75. You could also redeem your points for a Walmart gift card and then sell it for cash at a site like PlasticJungle.com that offers you 91 cents on the dollar. 50k points would net you $455 in cash.
$655 in Airfare (ThankYou Travel Center)
Now let’s look at the advertised airplane ticket option. A good question is whether a flight booked through the ThankYou Travel Center costs the same as through any other travel site like Expedia, Orbitz, etc. I have some old ThankYou points laying around, so I went to the redemption site and found that the prices are very closely aligned to what is offered at sites like Expedia.com. I did a few quick searches for random flights, and the cost of the flight matched up with the cost in points in a 100:1 ratio. For example, the exact same flight below that cost $360 including taxes and fees on Expedia would cost 36,000 TY points.
ThankYou Travel Center screenshot:
Expedia.com screenshot:
So the pricing seems fair, no inflated prices or hidden fees. However, with this specific Premier card with the annual fee, you also get 33% more value when redeemed for airfare. Thus, 50,000 points can be redeemed for $665 in airfare, which would typically require 66,500 points. Since you can book any flight that can be found on Expedia, there are “no blackout dates”.
Update October 2011: Let’s say you found a ticket for $200 = 15,000 points, but only have 10,000 points in your account. Citi now lets you pay the difference, so in this case you can get your $200 ticket for 10,000 points and $67. This makes it much easier to use up all of your points at a 33% premium.
Some other highlights of the card:
- No foreign transaction fee on purchases.
- Earn 1.2 ThankYou Points per $1 spent at gas stations, supermarkets, drugstores, commuter transportation and parking merchants. Earn 1 ThankYou Point for every $1 spent on all other purchases.
- No limits on earning points or expiration dates.
- Earn points for the miles you fly as well when you purchase a ticket with your Citi ThankYou Premier Card.
- Other smaller perks, like 200 bonus points for signing up for online account access, 200 points for paperless statements, and a 1-5% bonus on your existing point balance on your annual card anniversary.
- Annual complimentary domestic companion ticket. (Fees and taxes not included. Full details not available on application.)
Posted in Credit Cards | 69 Comments »
Monday, December 19th, 2011
CreditKarma.com (which provides free credit scores) recently released an infographic “The Lifecycle of Debt and Credit Scores” that shows both the average credit score and the average amounts of different debt types by age bracket. I notice that mortgage debt jumps significantly from the 30-34 to the 35-39 bracket, and sadly doesn’t go back down to those levels until past age 80. I’m surprised by the amount of mortgage debt from the 65+ crowd.
It’s also a little sad to see credit card debt being held by someone 95-99, and I also wonder why average credit scores start to decrease again after age 80. Is it because of increased money problems from health issues, or something like a “you can’t take it with you” attitude?
(click to enlarge)
Posted in Credit Cards | 10 Comments »
Monday, December 12th, 2011
I’ve been taking advantage of credit card bonuses and rewards for over 10 years now, earning thousands of dollars in perks while paying zero interest. I can honestly say that sign-up bonuses have never been larger than today. My rule used to be that I would only apply in exchange for at least $100, but now cards with $500 bonuses like the Chase Sapphire Preferred Card and the Citi ThankYou Premier Card have been around for several months. I basically paid for all my holiday shopping with them!
A common reader question is – how does opening and closing all these cards affect your credit score? I’ve answered parts of this question here and here, but here’s the all-in-one answer.
Credit Score Basics
Credit scores come from proprietary mathematical formulas, the most popular one being Fair Isaac (FICO). The input is the history and data from our credit reports. The output is a numerical prediction of our creditworthiness. Since we have 3 different credit reports (Experian, Equifax, Transunion), we have 3 different credit scores. They’ll never reveal all the ingredients to the secret sauce, otherwise they’d have nothing to sell us. Thus, we must make do with what we have. FICO has released this breakdown for us, along with many other collected details over time:
Effect of Opening New Credit Cards and/or Closing Existing Accounts
35% On-Time Payments. Not surprisingly, the biggest chunk of the score is your record of timely payments. If you pay your bills, you’re likely to… keep paying your bills! Briefly, anything 30-days late or worse can show up here, although a 60-day late or 90-day late is even worse. If you just barely miss a due date and pay it off within 30 days, it shouldn’t show up here. This factor has nothing to do with opening or closing credit cards.
30% Capacity Used. This refers to how much of your available credit you are using, also known as utilization ratio. The lower the better. Being maxed out on all your cards is obviously not a good sign. Utilization ratio is tracked both on an overall level and on a per card level. For example, having five different cards with a $1,000 balance each and $10,000 credit limit each (10% ratio x 5 cards) is better than having 4 cards with no balance and one card with the $5,000 balance (50% ratio on 1 card).
In the long run, having more credit cards would be a good thing as it should mean more available credit and a lower utilization ratio. For the same reason, you should never close a credit card unless not doing so would cost you money. You want to keep all the available credit you can.
15% Length of Credit History. The longer your credit history, the better. Both the age of your oldest account and the average age of all your accounts are tracked. Continuously opening new credit lines will thus hurt your credit score. At the same time, having a lot of old cards can “anchor” your average account age as well. If I already have 20 cards averaging 8 years old, adding another new credit card won’t make that average budge hardly at all. Recently, I learned that closing a credit card actually has no effect on your average age of accounts or credit history length. The closed account will stay on your credit report for 10 years.
If you have “young” credit history, you’ll need to balance the desire for new accounts (which will one day be old accounts) with how good your other factors currently are to keep a good credit score. Another strategy is to be added as an authorized user on someone else’s account with a long age. (They took this away for a while due to abuse, but brought it back. Just make sure it’s legit, for example with your spouse/partner or parents.)
10% Types of Credit Used. We’re getting to the lesser factors. How do I know? This factor refers to the mix of different credit accounts out there – revolving credit like credit cards, retail accounts (store cards), installment loans like auto loans, and home mortgages. Having a greater mix is better. However, I have never had a store card, auto loan, or a mortgage on my credit report, and my credit score has remained excellent. You definitely don’t need all of these types to have a good credit score.
Now, I do think it is a good idea to have at least some form of credit to show that you can handle the idea of borrowing something and paying it back. A credit card allows you to do this within the monthly grace period without paying any interest.
10% Past Credit Applications. This what everyone worries about, but it’s again we see it is only a 10% weighting. This factor makes sense though, as applying for a lot of credit in a short period of time is an indication of financial troubles. Therefore, you should be very careful with what are called “hard” credit inquiries. Hard credit inquiries (“pulls”) are usually from loan applications (asking for more credit). Soft credit inquiries occur when you are just checking your own credit score, or when other financial companies check your credit history as identity verification or for pre-approval offers (here, you didn’t ask for it).
Hard pulls affect your credit score negatively for a temporary period of time. For mortgage and auto loans, there are special accommodations by FICO for “rate-shopping”; All hard inquiries within a 14 day period for mortgages or auto loans will only count as one inquiry.
In regards to apply for new credit cards, it’s difficult to know the effect of a hard inquiry by itself, as a new credit card account will also affect the other factors above (average age of accounts, credit limits, utilization ratio). For someone with a longer credit history, a new credit card application will have little effect. For someone with zero credit cards, it will have a larger effect. The general consensus is that each hard pull knocks about 3-5 points off your credit score, and the effect decreases as time passes – after 6 months the effect is reduced, and after a year it is gone. The recording of inquiries does stay on your report for 2 years.
Takeaways
- For a high credit score, the most important things to do are to pay your bills on time and not use all of your available credit limit. Don’t lose sight of this.
- Applying for new credit cards will affect your score negatively for the short-term, with the effect going away over time and gone in a year. However, that doesn’t mean they aren’t precious. Only apply if it’s worth it through lowering your existing interest rates, upfront bonuses, cash back, or travel rewards. Hard pulls are the same as cash for me!
- Never close an existing credit card unless you are avoiding a fee or in exchange for something worthwhile (like a mortgage approval). Closing an account never helps your score, but only really hurts if it makes up a huge chunk of your existing credit limit.
Based on my own experiences, my personal choice is to limit myself to about 3-5 credit cards per rolling 6-month period (more when there are good offers and less when there isn’t). My primary concern is not really the credit score, but more the fact that individual issuers might not approve me just due to the inquiries even though my score is fine. I’ve scored over $2,000 in bonuses the last year alone, and that’s not even including my wife.
p.s. It’s not FICO, but now you can get your free credit scores with no trial periods from all 3 major credit bureaus. Tracking them regularly can alert you to significant changes in your reports.
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