There are many considerations when it comes to opening multiple credit card accounts. You have probably noticed how frequently you see advertisements for credit cards specific to rewards, whether for clothing stores, gas or travel. While these incentives are great, they should be considered carefully because applying for multiple credit cards will certainly impact your credit score.
Credit cards impact your score more than you realize
It is common for consumers to be aware that overspending and not paying bills on time will damage credit scores. However, what is less commonly well known is that applying for multiple cards in a short time frame can be damaging to your credit score as well.
According to NerdWallet, each time you apply for a new credit card a hard inquiry is performed. This is a review of your credit profile, and it will cause your credit score to drop a couple of points. While this can certainly be repaired fairly quickly, many of these inquiries in a short amount of time will be harder to recover from.
"Hard inquiries cause your credit score to drop several points."
Additionally, when lenders see that you are applying for several cards in a short amount of time, it demonstrates to them that you are a financial risk and potentially in need of much credit.
This is not to say that opening several cards is a problem. In fact, having several active cards can be beneficial to your income-to-debt ratio, if you are maintaining good credit. This is because it demonstrates to lenders that you have lots of available credit but little debt. On the other hand, it allows you to spend more, which if happening often can be problematic when lenders view your score.
Specific cards can be beneficial
Overall, the important thing to note is that if you are going to apply for a credit card specifically to earn points toward travel, then you should do your homework and select a card that is right for you. Additionally, you should intend to use this card for this purpose, as different cards can have fees affiliated with them, and if you aren't getting your travel's worth, then you may be forgoing the benefit.
You have to ask yourself how much you realistically travel, and will you get use out of a card like this. According to CreditCards.com, there are various types of cards dedicated to traveling. Some travel cards are airline-specific, meaning you can only retain your points or miles with that airline. Others are general and allow you to apply your earnings toward various airlines. There are others that can be applied to hotels or other accommodations.
It is important to note that differences can take the form of terms and conditions as well. For example, some points might expire, while others are good for life. And again, various cards have different fees associated with them. Make sure you are considering the fees in addition to the rewards, because if the rewards aren't being utilized then you might be paying more than you should be.
Travel cards need to be repaid the same way
When it comes to travel credit cards, they may have different interest rates or reward systems, but you still need to pay them off on time. Don't use your card with the intention of building miles to travel, but then find yourself unable to pay it down when the time comes. You have to budget and plan accordingly just like you would any other credit card.
When you don't pay your credit card back on time, your credit score will fall, and repairing credit is more difficult than maintaining it. While we have the resources to assist you with credit repair, you should keep an eye on your credit spending habits no matter what type of card you are using.
Additionally, if you plan on using that same card while traveling, and not just for earning points, then make sure you check out our information page pertaining to using credit while traveling.