Will Opening Multiple Credit Cards Hurt Your Credit Score?

by Living Proof on July 21, 2014

in Travel Hacking

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The Easiest, Quickest, and Cheapest method to collecting millions of miles/points is to simply apply for credit cards! This is by far the most lucrative method available today, and there really isn’t anything else that comes close. For example, in the past five years, I’ve opened/closed at least 50 credit cards, and accumulated over 3 million miles/points. Yes, that’s correct, it’s possible to accumulate a balance in the Millions!

But if it’s so easy then why isn’t everyone doing it?

The simple answer is, Fear. We all fear what we don’t know, and conventional wisdom is that applying for too many credit cards is bad, and it will damage your credit score.

But do you really understand how your credit score is calculated?

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I. Your Payment History

Your payment history accounts for a whopping 35% of your total credit score. Therefore, as long as you pay all your bills on time each month, your score will continue to rise. If you have late payments, missed payments, or in collection, your score will go down.

II. How Much You Owe

30% of your credit score is based on how much you owe, or your debt-to-credit ratio.

For example, suppose you have only one credit card with a credit limit of $5,000. If you carry a balance of $2,500, then your debt-to-credit ratio would be 50% ($2,5000/$5,000). This ratio would be considered really high, and your credit score would drop.

Now, let’s suppose you have two credit cards and each with a credit limit of $5,000. If you carry the same balance of $2,500, then your debt-to-credit ratio would now be 25% ($2,500/$10,000).

As you can see, by opening more credit cards, your total available credit goes up, and your debt-to-credit ratio will go down.

III. Length of Credit History

The length of your credit history will account for 15% of your credit score. Therefore, the longer your credit card accounts are opened, then the higher your score will become. Never cancel credit cards which have been opened for 10+ years. If you cancel these credit cards, then your credit score will drop big time.

IV. New Credit

Next, 10% of your credit score is based on new credit. Every time you apply for a new credit card, you will have a hard pull on your credit report. If you have too many hard pulls in a short amount of time, then these multiple “inquiries” will appear on your credit report. Multiple inquiries is interpreted as a sign of high risk, and will cause your credit score to drop.

V. Credit Mix

Finally, the last 10% is based on the different types of accounts you have. For example, credit cards, mortgage loans, and retail accounts. Overall, the credit mix won’t be a key factor in determining your credit score. It’s only really important if your credit report didn’t have any of the other components to base a score upon.

But how does this affect my overall credit score?

Every time you apply for a new credit card, your credit score will drop 2-7 points in the short term. For example, if you were to apply for a different credit card each day, for four days straight, then your credit score would take a big hit! Therefore, in order to “game” the system, you simply apply for multiple credit cards on the same day. The end result is that you will only have one hard pull instead of racking up four hard pulls!

On the flip side, since you opened multiple new credit cards, your total available credit will increase. Remember, if your total available credit increases, then your debt-to-credit ratio will decrease! The end result is your credit score will rise in the long term.

To sum it up, YES, your credit score will drop a few points in the short term, but after a few months, your credit score will rise higher! Why? Because your debt-to-credit ratio will decrease, and this component is 30% of your credit score!

Don’t Apply for Credit Cards If…

  1. Credit score is low: Obviously, if your credit score is low to begin with, then you will have a hard time being approved for new credit cards. The best thing to do is to raise your credit score before you can begin applying for multiple credit cards. Try to get your credit score to be 720 before trying to rack up miles/points.
  2. No credit history: If you are young, then your credit score won’t be very high since you don’t have any credit history. Therefore, you should apply for a no annual fee credit card to begin building a credit history.
  3. Carrying a balance: If you are carrying a balance, and paying interest, than any benefits from accumulating more miles/points is NOT worth it. Paying +20% in interest is not going to benefit you in the long run, trust me!
  4. Applying for a mortgage, auto loan, or refinancing: It’s usually not a good idea to apply for more credit cards if you are trying to secure a loan. The banks will count all liabilities against you, and opening up multiple credit cards is not going to help! Therefore, secure the loan first before racking up the miles/points.

My Personal Experience

When I first began the travel hacking game, my credit score was ~720, and now it’s 795 (with 7 mortgages)!

Back then I would always pay my bills on time, and I never carried a balance. I knew my credit score was pretty good, but it wasn’t helping me in any other meaningful way. Then, I discovered the magic of miles/points, and was able to leverage my high credit score! I didn’t have any trouble being approved for 5+ credit cards at a time. So if your score is >720, and you’re not applying for enough cards, then your credit score isn’t working for you with credit card sign-up bonuses.

Overall, the key to my credit score success is to keep my debt-to-credit low. This is how I can be approved for 50+ credit cards, and still have a high credit score of 795. In addition, I have a few credit cards with no annual fees that I’ve had since I was 18 years old, and they really help to balance out my average length of credit card accounts. Again, I will never cancel these credit cards.

But what about the credit cards with annual fees?

Typically, with most of my miles/points credit cards, I will cancel them after 11 months when the annual fee is due. Cancelling credit cards within 11 months will not affect your length of credit history. Why? Because it will have a small effect on the average length of all your credit card accounts. In addition, when I do cancel a credit card, I will make sure to transfer the credit limit to another credit card, which helps me to maintain my total available credit. Remember, the debt-to-credit ratio makes up 30% of your credit score!

In summary:

  • Pay your bills on time
  • Never carry a balance
  • Never cancel no fee credit cards
  • And apply for multiple credit cards on the same day!

It’s an easy formula to follow, and my credit score continues to Rise! Plus, I get to travel in 1st Class, and stay in 5 Star Hotels!

If you ask me, that’s a really good DEAL!

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About the Author: Living Proof (14 Posts)

Living Proof is an avid real estate investor with a strong case of Wanderlust. He enjoys talking about his crazy lifestyle of collecting frequent flyer miles and hotel points. Within the next year, he hopes to declare early FI and to travel the world!


{ 19 comments… read them below or add one }

1 Even StevenNo Gravatar July 21, 2014 at 6:49 am

I totally see the upsides in travel hacking and rewards. In my personal situation I do not subscribe to credit cards since I have student loan debt, etc. Regardless I’m not sure if 50 credit cards passes my common sense approach to personal finance.

Reply

2 Living ProofNo Gravatar July 21, 2014 at 11:17 am

Hey Even,

I should clarify, I don’t actually have 50 credit cards opened at one time. But I have opened and closed at least 50 in the past few years. I’ll update the article.

Remember, as long as you don’t carry a balance from month to month, then you won’t be accumulating debt when playing the travel hacking game. Just remember to start small, and you will get the hang of it. The key is to be responsible, and not fool yourself into thinking you can go on a shopping spree!

Reply

3 CINo Gravatar July 21, 2014 at 10:59 am

Thanks for the informative post! This is relevant for me as I’ve been working on raising my credit score the past year. I recently picked up a third rewards credit card with a $15,000 limit (kind of surprised it was so high) which boosted my score over 800. I plan to cancel one of the other cards that has a small limit, guess we’ll see how that goes. Sounds like it won’t hurt me too much.

I find 3 cards to be a bit unruly, can’t imagine having 50!

Reply

4 Living ProofNo Gravatar July 21, 2014 at 11:17 am

Hey CI,

If you don’t have an annual fee on the small limit credit card, maybe it’s worthwhile to just keep it?

If you do decide to cancel it, ask the rep to transfer your credit line to another credit card. This will keep your total available credit the same – which is what you want.

I know when I first started I thought 5 cards would be too much, but as you become more and more comfortable, and actually witness your credit score going up, then the sky is the limit!

Reply

5 guest12No Gravatar July 21, 2014 at 1:21 pm

How do you transfer your credit limit to a different credit card when closing?!?

Thanks!

Reply

6 Living ProofNo Gravatar July 21, 2014 at 1:50 pm

You will need to have another credit card opened with the same bank.

For example, for each bank (Citi,Chase,AMEX…) I have one credit card which has no annual fee (I keep this card forever). Then, when it’s time to cancel the reward credit card, I will move this credit limit to the credit card with no annual fee (same bank). It’s very easy to do =)

Reply

7 No Nonsense LandlordNo Gravatar July 21, 2014 at 1:29 pm

I see a lot of credit reports. I saw one tenant, after being late only once, with a 585 credit score. She had ~20 accounts, all current but one. And a 90% credit utilization rate.

Pay bills, keep old credit cards, keep a low overall balance. It’s simple and makes everything in life easier and cheaper.

Reply

8 Living ProofNo Gravatar July 21, 2014 at 1:54 pm

Yes! It’s very simple, and you reap all the rewards =)
Wow, 90% utilization rate! You can’t play this game with that kind of debt-to-credit ratio……..

Reply

9 JPNo Gravatar July 21, 2014 at 4:09 pm

Great article… been thinking about getting into travel hacking, but haven’t yet.
Couple questions:
1. When you transfer the credit limit, will they add it to the existing limit on the receiving card. For example, I’m canceling a card with a $10,000 limit, but have a card with no annual fee that has a $5,000 limit. When I transfer the limit, will my new limit on the no annual fee card be $10,000 or $15,000?
2. What do you do about the points/miles when you cancel the cards? Do you have to transfer the points to airline miles, or spend them before you cancel the card?
Thanks!

Reply

10 Living ProofNo Gravatar July 21, 2014 at 4:28 pm

Great questions JP!

1. The new credit limit for the no annual fee card will be $15,000. You essentially move the entire credit limit over.
2. There are only two programs where you have to worry about this:
a. Chase Ultimate Rewards
b. AMEX Membership Rewards
With these programs, you need to transfer the points to the airline or hotel before cancelling. For all other reward cards, the miles/points will transfer to the airline/hotel at the close of each monthly statement.

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11 KippNo Gravatar July 22, 2014 at 7:10 am

I think that credit card rewards are a great way to boost cash flow to pay off debt quicker or travel. Now that I have no planned loans in the future, I can see a huge benefit to going on a tear with credit card sign-up bonuses, I mean if I can boost my income a couple thousand for buying what I would buy anyways… why not? That is more money to kill debt or invest.

Reply

12 Living ProofNo Gravatar July 22, 2014 at 10:41 am

How do you plan to boost cash flow? By applying for a cash back reward card?

Reply

13 KippNo Gravatar July 22, 2014 at 12:28 pm

Yes, if you keep getting rewards for applying, that would help boost cash flow.

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14 CantWinNo Gravatar July 22, 2014 at 8:05 am

My credit history goes back over 30 years.
My credit score gets reduced because I have no debt and too much
available credit that is not being used.
One suggestion on the credit report is to get a department store charge card.
That would give me even more available credit to not use and reduce my score.

Reply

15 Living ProofNo Gravatar July 22, 2014 at 10:43 am

Did you mean your credit score would increase? If you had no debt and a lot of available credit, then your credit utilization would be very low.

Reply

16 SundeepNo Gravatar July 22, 2014 at 12:10 pm

I agree with Living Proof.

I essentially have just three cards, only one of which I use at all, paid off every month. Total credit available of about $50k, with only about $1k on the one card I use at any time. I barely, if ever, even use the other two cards (all no annual fees) and my credit score is 820.

Need to seriously take advantage of the score and get into the airline miles/bluebird/gift card game.

Reply

17 Living ProofNo Gravatar July 22, 2014 at 1:28 pm

Yes! It’s time to get in the game and make your high credit score work for you =)

Reply

18 CalebNo Gravatar July 29, 2014 at 7:24 am

This is great information for individuals who are new to applying for and handling credit cards. Balances and debt can become overwhelming if cards are mishandled and used irresponsibly. Always have a plan with a credit card. Know what you are going to use it for and how you are going to consistently pay it off. This can help keep the balance low and not get hit by major interest charges.

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19 Living ProofNo Gravatar July 29, 2014 at 10:42 am

Yes, you never ever ever ever want to be hit with interest charges! It just doesn’t make sense to pay +20% to the bank. Better to save up your money for that purchase than to pay that kind of fee every month.

But for those of us who are responsible with our credit, we can really leverage our good credit score, and reap the benefits of Travel Hacking!

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