Credit Cards, Credit Score and more, Explained
TL;DR Credit cards can be very lucrative, but do have some caveats. A little care and due dilligence will go a long way.
Disclaimer: The content on this website is for informational purposes only. AwardAce is not an investment, financial or legal advisor.
Before you consider opening up cards, make sure that you can check off the following:
- You have a good credit score
- You are able to pay off your balances in full every month
- You spend enough money to fulfill minimum spending requirements for bonuses
You may be wondering: don't credit cards hurt your credit score? It does and it doesn't.
Credit Cards and Your Credit
Your credit score is composed of several factors: amount owed, payment history, new credit, length of credit history among others.
When you open a new credit card, the issuing bank will generally make what is called a "hard pull" to check credit report. This credit inquiry affects the "new credit" part of your credit score. If you are approved for the card, you will have a new line of credit on your report. This new account lowers the average account age, affecting your length of credit history.
These two factors combined may bump your credit down in the short-term. If you applying for a new line of line of credit (such as a mortgage) in the coming 6-12 months, it is generally not recommended to open a new credit card.
Possible Silver Lining
Over time, as hard pulls fall off the report and your new accounts age, credit cards may actually improve your score over the long-term. However, this is not guaranteed as everyone's personal credit situation is different.
Your credit isn't something to play around with; start slow and gradually build up your both credit and ability to handle it. Stay informed through all the literature out there to make the right move for yourself.
- Offers come and go – bonuses sometimes go up, and sometimes they go down. They're hard to predict, though many bloggers will help you figure out whether the current crop is any good.
- Approval requirements change over time – Chase recently introduced a restrictive 5/24 rule that only approves applicants who have had no more than 5 cards in the past 24 months.
- Bonus policies change over time – American Express just announced changes that limited new cardholder bonuses to once per lifetime.