MilesBuzz! - Adding new cards/cancelling- credit rating?

We currently have about 4 credit cards? We pay off balances each month and never carry a balance.
My question is IF you apply for Credit cards to gain skymiles or hotel points and then cancel after you get the "freebies"; how does this effect your credit rating?

Does having a cc and then cancelling have any affect?

Each application goes on your credit report for a relatively short amount of time (3 months?).

Of course, the portion of available credit being used also comes into play, so getting a card, and essentially not using it would be positive with respect to your credit.

Certainly don't cancel any of the cards until right before the next annual fee would be charged.

Applying for cards has a small effect on your credit rating. If you have a decent credit rating, it's nothing to worry about.

I've had the same question and have gotten different answers depending on the source: 1) any activity (applying for, getting a new card or being rejected for one, closing an exiting account, etc.) all show account activity and all are not a good thing; 2) none of the above matter...the only thing that matters is how much total credit you have access to vs. how much you're using; and 3) I presume the alignment of the moon and the stars.

I've also seen threads here saying keep them all and call them when the renewal time comes and either talk them out of the annual renewal fee or get them to give you additional miles for renewing.

I'm also hoping to see some good stuff here...good question.

Your credit score will decrease (somewhat) because of the hard inquiry from opening the account. This effect will diminish after a few months. Your credit score may increase because your credit utilization ratio goes down as you open a new line of credit. Your credit score may decrease/increase depending on whether you have too many/too few open accounts per their scoring format.

In the end it doesn't really matter unless you're planning on applying for a loan in the next few months. If you are, don't open a bunch of cards for the miles. If you're not, why worry about your score?

Sorry to jump in over the OP...but are you saying that the "hit" ofr card/applicaiton activiy may only last a few months. I've heard 3 years and the like? Thank you.

Your credit score will decrease (somewhat) because of the hard inquiry from opening the account. This effect will diminish after a few months. Your credit score may increase because your credit utilization ratio goes down as you open a new line of credit. Your credit score may decrease/increase depending on whether you have too many/too few open accounts per their scoring format.

In the end it doesn't really matter unless you're planning on applying for a loan in the next few months. If you are, don't open a bunch of cards for the miles. If you're not, why worry about your score?

Sorry to jump in over the OP...but are you saying that the "hit" ofr card/applicaiton activiy may only last a few months. I've heard 3 years and the like? Thank you.

Anecdotally some people have reported their score dipping by 30 points or so but keep in mind they fall off after 2 years regardless. So 3 years would be impossible. And after 6 months they seem to have far less of an impact on your credit score than immediately following the inquiry.

There are A LOT of threads on this topic in the CC form. The consesus seems to be that there is a minimal effect +/- 25 pts if you have good credit.

Anecdotally some people have reported their score dipping by 30 points or so but keep in mind they fall off after 2 years regardless. So 3 years would be impossible. And after 6 months they seem to have far less of an impact on your credit score than immediately following the inquiry.

Thanks that answered my question. Just did not want to mess up a good thing.
Keep the points rolling - I mean cards... :)

So much misinformation (which is way the credit reporting industry prefers it). For some good articles go to msnmoney and check the credit articles. Other good articles can be found at bankrate.com - some are linked at pgary's website. Here is what we know:

(1) If you apply for a card, a hard inquiry will appear on at least one of your credit reports. But prob. not all 3. I just applied for a CitiAA Business card, it only dings my Experian report, not the others. So your scores may not drop at all due to the inquiry.

(2) An inquiry, by itself, does not necessarily lower your score. It depends on how many applications you make, how many accounts you have, your available credit, etc. If you have several inquiries over a short period, i.e. one month, your score will probably drop, but not by much. And of course mortgages are treated differently - the score system will assume you are shopping for a mortgage and doesn't penalize you.

(3) The higher your score, the less likely a single application will affect it, particularly if you haven't applied for anything in the past 6 months.

(4) Hard inquiries stay on your report for 2 years, but from what I can tell (frequently checking my score) they don't have much effect after 1 year.

(5) In the case of the OP, adding a card to the 4 you have might temporarily decrease your score but the effect is temporary. Note this will happen in all 3 credit bureaus as your account will be reported to all 3 (even if they only inquired at 1 when you applied). If you use the card but keep the balance at <30% (even better <10%) of your credit limit, your score will actually rise after a few months because you will have a lower credit utilization ratio.

(6) If you already have great credit and 6+ cards with high limits and low balances, an additional card won't have any noticeable effect on your ability to get the lowest interest rate for a mortgage or car loan.

(7) The people who have to be very careful are those with middling credit, as a drop of 10-25 points could put you in a new rate class for a car loan or a mortgage. If you are planning to apply for either in the next 6 months, you may want to run your credit score before applying for that new card. 25K miles won't be much consolation if you end up paying a higher interest rate on a jumbo mortgage. :(

(8) If you have bad credit, an inquiry will hurt you more initially but after time will help your score even more. But if you get 2+ cards, it will really hurt you as the system assumes you are loading up on credit because you need cash and therefore are a greater risk than someone who doesn't need new cards.

So much misinformation (which is way the credit reporting industry prefers it). For some good articles go to msnmoney and check the credit articles. Other good articles can be found at bankrate.com - some are linked at pgary's website. Here is what we know:

(1) If you apply for a card, a hard inquiry will appear on at least one of your credit reports. But prob. not all 3. I just applied for a CitiAA Business card, it only dings my Experian report, not the others. So your scores may not drop at all due to the inquiry.

(2) An inquiry, by itself, does not necessarily lower your score. It depends on how many applications you make, how many accounts you have, your available credit, etc. If you have several inquiries over a short period, i.e. one month, your score will probably drop, but not by much. And of course mortgages are treated differently - the score system will assume you are shopping for a mortgage and doesn't penalize you.

(3) The higher your score, the less likely a single application will affect it, particularly if you haven't applied for anything in the past 6 months.

(4) Hard inquiries stay on your report for 2 years, but from what I can tell (frequently checking my score) they don't have much effect after 1 year.

(5) In the case of the OP, adding a card to the 4 you have might temporarily decrease your score but the effect is temporary. Note this will happen in all 3 credit bureaus as your account will be reported to all 3 (even if they only inquired at 1 when you applied). If you use the card but keep the balance at <30% (even better <10%) of your credit limit, your score will actually rise after a few months because you will have a lower credit utilization ratio.

(6) If you already have great credit and 6+ cards with high limits and low balances, an additional card won't have any noticeable effect on your ability to get the lowest interest rate for a mortgage or car loan.

(7) The people who have to be very careful are those with middling credit, as a drop of 10-25 points could put you in a new rate class for a car loan or a mortgage. If you are planning to apply for either in the next 6 months, you may want to run your credit score before applying for that new card. 25K miles won't be much consolation if you end up paying a higher interest rate on a jumbo mortgage. :(

(8) If you have bad credit, an inquiry will hurt you more initially but after time will help your score even more. But if you get 2+ cards, it will really hurt you as the system assumes you are loading up on credit because you need cash and therefore are a greater risk than someone who doesn't need new cards.

Very nice summary!

It would seem that a good strategy if you no longer wanted a card with a fee is to convert it to a product that doesn't have a fee. That way you have unused available credit, history on that credit card, which can help your score. Then put it in a drawer and don't use - it might even have a balance transfer offer that might come in handy.
Somebody, please point out if my reasoning has some flaws.

Too add, I applied for one Visa card last month, and was approved for a $15K credit line. I have a high FICO score (excess of 800) on my Experian record. The inquiry hit my Experian account, and my FICO went down four points. Negligible. Even though inquires stay for two years, I believe only inquiries that are less than one year old (it may be as low as six months), do ding your credit record.
When the credit line appeared on my credit record, my FICO didn't budge. It stayed four points lower.
That's my experience, but YMMV.

Too add, I applied for one Visa card last month, and was approved for a $15K credit line. I have a high FICO score (excess of 800) on my Experian record. The inquiry hit my Experian account, and my FICO went down four points. Negligible. Even though inquires stay for two years, I believe only inquiries that are less than one year old (it may be as low as six months), do ding your credit record.
When the credit line appeared on my credit record, my FICO didn't budge. It stayed four points lower.
That's my experience, but YMMV.

A question and a comment:

Is the "credit score" you (or anyone else) receives from Experian actually the same number that Experian would report to lenders as your FICO score at the same point in time? A while back, I got the impression that these numbers could vary (but probably not significantly).

For better or worse depending on your particular situation, last we knew, Citigroup was not reporting Diner's Club card activity to the credit agencies. See this thread: http://www.flyertalk.com/forum/showthread.php?t=515495

Boraxo had a pretty good summary and corrected much of the incorrect info that was initially given. One thing that I would add is that opending new cards will also reduce the overall "average age" of your credit profile, which can sometimes in turn also lower your score.

It would seem that a good strategy if you no longer wanted a card with a fee is to convert it to a product that doesn't have a fee. That way you have unused available credit, history on that credit card, which can help your score. Then put it in a drawer and don't use - it might even have a balance transfer offer that might come in handy.
Somebody, please point out if my reasoning has some flaws.

Some experts advise that you use all your credit cards at least once a year so that they appear as active, on the belief that inactive accounts do not help your score. Of course, FairIssac and the other scoring systems won't divulge their formula's, so it's all a guess. But it can't hurt to use each card once a year, so long as you don't forget to pay the bill (I have all of mine set up for automatic payment through online banking).

Too add, I applied for one Visa card last month, and was approved for a $15K credit line. I have a high FICO score (excess of 800) on my Experian record. The inquiry hit my Experian account, and my FICO went down four points. Negligible. Even though inquires stay for two years, I believe only inquiries that are less than one year old (it may be as low as six months), do ding your credit record.
When the credit line appeared on my credit record, my FICO didn't budge. It stayed four points lower.
That's my experience, but YMMV.

1)your credit score and FICO score are two different things.

2)If your FICO (as you state) is in excess of 800 any credit card company will instantly approve you for at least 50 grand credit line (usually well into 6 figures)... $15 credit line with an 800+ FICO doesnt add up.

Well, Suze Orman says it's OK, as long as you resist the temptation to rack up debt on them all. I have a couple of cards I got just to take advantage of the 0% interest on transfers, using that to pay off a car loan and beat the interest. I haven't cancelled them yet because Suze says having that open credit actually helps your credit score.

2)If your FICO (as you state) is in excess of 800 any credit card company will instantly approve you for at least 50 grand credit line (usually well into 6 figures)... $15 credit line with an 800+ FICO doesnt add up.

That's not necessarily true. One can have a high FICO score without having a huge income. A credit card company looks at income when determining credit lines. I think that you're right than most credit card companies will give a card to anyone with an 800+ FICO score, but the amount of the line of credit may not be so gigantic as you imagine.

It would seem that a good strategy if you no longer wanted a card with a fee is to convert it to a product that doesn't have a fee. That way you have unused available credit, history on that credit card, which can help your score. Then put it in a drawer and don't use - it might even have a balance transfer offer that might come in handy.
Somebody, please point out if my reasoning has some flaws.

I am curious about this--- when you convert a card to a no-fee card or something, does that not report as closing one card and opening another? Or do they do it through the same account (thus your history and # of accounts remains the same)?

Also-- does canceling a card hurt you for any other reason than lowering your amount of available credit and possibly shortening your overall credit history length? (which would not be the case if it was your newest care-- it might theoretically help?)

when you convert a card to a no-fee card or something, does that not report as closing one card and opening another? Or do they do it through the same account (thus your history and # of accounts remains the same)?

I think this depends on the card issuer. I've had it happen both ways.


Also-- does canceling a card hurt you for any other reason than lowering your amount of available credit and possibly shortening your overall credit history length?
I think those are the two main effects. However, the exact formula is not released, so it's hard to know exactly.

Any resource which outlines which companies report which way?--- I would rather not rely on what a CSR tells me :td:

That's not necessarily true. One can have a high FICO score without having a huge income. A credit card company looks at income when determining credit lines. I think that you're right than most credit card companies will give a card to anyone with an 800+ FICO score, but the amount of the line of credit may not be so gigantic as you imagine.

yes it is. to begin with, FICO scores DO NOT know how much money you make or whom do you work for. Your CREDIT SCORE might be alerted whom do you work for from the agencies but not if you make minimum wage or 50mm/yr. The way FICO scores calculate your income varies, however it all begins with what your lender is willing to lend YOU (i.e. credit line). So if your have a 6 figure credit line w/ 1 CC company, what do you think other CC co's are willing to lend you? at least 6 figures and probably more bcs they want to compete for your business.

Case in point: Since joining FT ive opened +/- 6 cards STRICTLY for sign-up points... they all matched my highest long standing CC credit line. AND, when SPG AMEX saw I was serious, gave me a call and TRIPLED my line... all i had to do is spend a few grand a day for a couple of months and pay the bill in full... voila'