When I tell people that signing up for credit cards allows me to fly around the world in first class for next to nothing, I typically get one of two reactions. Either “wow, that’s so awesome, sign me up,” or “well that’s nice, but I value my credit score far too much to ever do that.”
I tried to debunk myths regarding credit scores in this TravelSort post, though even when I link people there, some are still skeptical. The main thing I always remind people of is that only 10% of your credit score is made up of the number of new credit requests you make.
That being said, I think I finally came across a tool that illustrates how credit card churning has helped my credit score. I signed up for a free trial with freecreditscore.com (I get a small bonus if you sign up for anything beyond the free trial), and they have a pretty useful “Score Center.”
Here’s what my credit score looks like right now:
The cool thing is that the website lets you fool around with various aspects of your credit behavior to see what impact they would have on your credit score.
I already have the maximum number of inquiries in their drop down menu (7+), so I was curious to see what would happen if I only had 1-2 inquiries in my report. Here are the results:
So yes, my score would go up by nine points if I only had 1-2 inquiries.
But fewer inquiries would probably mean fewer credit cards, and that would probably mean a higher credit utilization ratio (since I’d be spending just as much money, but my combined credit lines would be much lower). I believe the current reported 2% credit utilization ratio is way lower than it actually is. So let’s see would would happen if my credit utilization were 30-50%, which is still reasonable and probably where I’d be if I only had 1-2 cards:
That’s right, my score would drop by 13 points, compared to an increase of just nine points with fewer inquiries.
Admittedly this calculator probably isn’t scientific, but I think the idea is clear. Credit card churning doesn’t ruin your credit score, and in many cases even helps it. Your decreased credit utilization ratio can more than make up for the additional inquiries.
I value my credit score (and wallet) too much not to sign up for credit cards when the bonuses are right.