Multiple Credit Cards for Points

Note: This post has been expanded and turned into a more permanent page: Maximize Credit Cards for Travel which discusses the various considerations including how your credit score may be affected in a more organized fashion.

Multiple Credit Cards for Points

Considering the Effect on Credit from Applying for Multiple Credit Cards

For the last couple of years I’ve seen the promos for credit cards and thought that the sign up bonuses, while nice, were insufficient for any real travel (especially if you aren’t racking up points elsewhere) and not worth the trouble. Then I discovered that the limitations of getting a single card can be overcome by churning cards and applying for multiple cards. This left the issue of how it would impact my credit score, so I dug through an excellent but terribly long thread about credit and this are the key points I’ve dug out (caveat emptor: I am not a credit professional … these are from what I read):

Key Effects on Credit

  • hard credit pulls happen when you ask for credit, and shouldn’t happen if an institution has done a soft pull to increase your credit limit or to offer you a product.
  • hard pulls should drop your score by 4-6 points immediately but are not the only way in which your score can be affected by new credit.
  • the point losses from a hard credit pull effects diminish after 6 months and are irrelevant after between 1 and 2 years (as long as you keep your score high you should be able to churn cards as long as you quit 1-2 years before looking for a mortgage/line of credit).
  • hard pulls done in the same week should show up as a single check in the formula so requesting multiple cards on the same day should hurt less
  • most hard pulls are done against Equifax while a few, like Amex are done against Trans Union – choosing applications that hit different organization will hurt less (you will still get new credit hits) as they will reduce different scores.
  • new credit is considered a risk and may bring your score down. This negative effect on your score will be increased by having a shorter credit history and opening multiple credit products in a short period of time. New credit becomes older credit after a year or two and the negative effect diminishes.
  • holding three credit cards is most favourable … more or fewer can hurt your score (although a bunch of old ones would be good)
  • keep the balances ideally under 30% or at least under 75% (doesn’t matter if you pay it off every month … trying to average under 30% usage if you can). Be careful when cancelling credit cards that you don’t increase your balance percentage too much.
  • keep your oldest card … don’t get rid of it but you can downgrade a fee based card to a non-fee based one and keep the history if you want. The age of your oldest card helps … and the average age of all your cards helps so having a really old card or a couple of older ones is better (with a 20 year old card you can have 3 brand new ones and still have a 5 year average … the older your cards the more you should be able to churn at one time). Be careful cancelling older cards that will decrease the average age of your cards.
  • keep a card with a high limit if you don’t have older cards with high limits … you don’t want to increase your overall credit ratio of balance/limit too much
  • use a new card for minimum 3-6 months so that it reports R1 instead of R0 … make sure you use it at least once (and pay it off) just before cancelling so it shows up as R1 on the credit report (this applies to any old cards that haven’t been used in ages … use once, pay, THEN cancel)… ideally use every card once a month to keep them reporting. A card that is R0 (to new to report) will affect your score negatively and will not be looked on favourably by any person approving your credit. A card that is closed R1 should not affect your score if it does not increase your credit usage percentage significantly (e.g. move you above 70% usage).
  • missed payments stay on your record for 7 years (longer exceptions involving bankruptcies) but it’s only reported if you miss by 30 days or more (except Sears who report right away). Missed payments can have a major affect on your credit score and should be avoided at all costs.
  • dropping store credit cards helps your credit.
  • having a mix of credit types helps your score (lines of credit etc).
  • there are lots of places that show you what percentage of your score comes from paying on time, new credit etc … they don’t always say that the fine print says that mix may change depending on your profile.
  • if you keep your score above 650 you should have few problems getting credit. If you keep your score above 700 you will be looked on very favourably.

Credit risk in a nutshell

If you have a long credit card history, a mix of credit types, always pay your bills on time and keep a low balance on all your revolving credit, aren’t looking for a mortgage or line of credit in the next year and your score is above 750 then you should be able to apply for multiple cards (2-5) at one time comfortably (unless you have a short credit history). To be certain you can check your scores before and after you’ve started applying for cards. Leave 3-6 months for your credit to start recovering before applying again. One or two cards every 6 months will have a lot less affect than a so-called app-o-rama (several cards at once – monitor your credit score carefully if you try this).

How do you know your score? Go to Equifax or Trans Union – Equifax, at the time of writing, had a free month for their basic monthly service (scores update every 3 months), which can be updated by phone for a free month of the premium service that updates daily.

Maximizing Points with Multiple Credit Cards

What is the benefit of multiple cards? One is to collect the greatest value of points that your credit comfort will allow. Lets take a look at a couple signing up to a few of the latest offerings:
Person 1:
– Signs up to Amex Aeroplan Gold with a referral & spends $500: 30K
– Signs up to Amex Gold Rewards (with referral from partner) and spends $500: 25K
– refers partner for Aeroplan Gold: 10K
– Signs up for TD Aeroplan Infinite and buys 1 thing: 15K
– Signs up for CIBC Aerogold Infinite and spends $500: 20K
Total: 100K

Person 2:
– Signs up to Amex Gold Reward Business (with or without a referral & spends $3000): 25K
– Signs up to Amex Aeroplan Gold (with a referral from partner) and spends $500: 30K
– Refers partner to Amex Gold Rewards: 10K
– Signs up for TD Aeroplan Infinite and buys 1 thing: 15K
– Signs up for CIBC Aerogold Infinite and spends $500: 20K
Total: 100K

They can now both go to Europe in business class (90K) with 2 stops plus a destination (there are fees involved … a lot less with United or Swiss than AC).

Instead they wait … mid year person 1 gets the Amex Business Gold Rewards (referred by person 1) and spends $3K: 25K
Person 2 gets the Amex Gold Rewards (referred by person 1) and spends $500.
They each get 10K in referrals.

Now they each have 135K in points … lets say they spend $750 per month on groceries/gas/pharmacy on their Gold Reward cards and $500/ month on other things on their gold rewards … that’s 2K Aeroplan points per month. In 15 months they will each have 150K points total and are off an around the world trip that could be worth $10K.

UPDATE:

I was accepted for Amex Gold Rewards (hard pull on Trans Union), three Visa/MC cards (hard pulls on Equifax) and one Visa with no hard pull (pre-approval) in a period of 60 days. The first hard pull generated a 6 point hit. The score dropped another 9 points after a month but it’s unclear as to what triggered the drop. With all three non-Amex hard pulls reported and two of four new non-Amex cards reporting as new credit, the total drop is a little under 40 points. The new Amex card posted to Equifax two months after it was opened and I have not monitored Trans Union (nor do I deem it necessary). With one card left to report the total drop in credit score is almost 80 – still quite healthy but I will wait to see how long it takes to recover. My credit profile is appropriate and I monitor the effect.

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