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In this world we learn things from the people that came before us.
I’ve been involved in the miles/points hobby for about a decade now, and even so there are lots of people that came before me.
So when I provide advice it’s partly based on the knowledge that I picked up from others, and partly based on my own experiences.
When it comes to applying for credit cards, one “tip” that has been around for as long as the Loch Ness Monster is that you should apply for multiple credit cards in a day.
But lets dissect this for a minute:
What impact does applying for credit cards have on your credit score?
There are a lot of misconceptions about how credit scores work. Most of the people that I know that aren’t involved in this hobby are convinced that if you apply for five new credit cards the police will knock on your door and take away your house.
That couldn’t be further from the truth.
To understand credit scores better, here are the components which make up your credit score:
- 35% of your score is made up of your payment history
- 30% of your score is your credit utilization
- 15% of your score is your credit history
- 10% of your score is made up of the types of credit you use
- 10% of your score is your request for new credit
When you apply for a new credit card you get hit with an inquiry, which falls in the category of requests for new credit. You’ll temporarily be dinged 2-3 points on your credit score, though that falls off within two years.
Meanwhile, virtually all the other components of your credit score can improve as a result of applying for a credit card, meaning your credit score can actually go up as a result of applying for more cards. For example, 30% of your credit score is made up of your credit utilization, which is the amount of your available credit you’re using.
Think of it this way. If you have one credit card with a $10,000 credit line and spend $8,000 on it per month, you’re using 80% of your credit.
Meanwhile if you had 10 credit cards with $100,000 of credit lines but were still only spending $8,000 per month, your credit utilization would be only 8%.
When you’re requesting more credit through a new application, which scenario is going to be riskier to the bank?
Obviously the former, since you’re already utilizing so much of your available credit. If you’re utilizing only a small percentage of your credit you’re much lower risk.
Why should you apply for multiple cards in a day?
Or more accurately I should say why does conventional wisdom suggest that you should apply for multiple cards in a day?
The reasons, in theory, are as follows:
- When you apply for credit cards, the inquiry doesn’t go onto your credit report immediately, so if you apply for five cards at once then none of those issuers will see the impact immediately
- In some cases, if you apply for multiple cards from the same bank in one day, it may only show up on your credit score as one inquiry
Why applying for multiple cards on one day shouldn’t matter anymore
The reasons for applying for multiple cards in a day were questionable to begin with, but nowadays more than ever there really isn’t any good reason to go out of your way to apply for multiple cards in a day:
One card = one inquiry
As I said above, in the past you’d sometimes get hit with only one inquiry if applying for multiple cards from the same issuer in a day.
There’s no evidence suggesting that’s the case anymore.
Credit reporting is faster than ever
In the past it might have taken a day for inquiries to hit your credit score, though most report that not being the case anymore. It’s almost instant in a vast majority of cases.
You shouldn’t be one credit card application away from being denied
This is really the most important point to me.
If you’re applying for credit cards responsibly and consistently, it really shouldn’t matter when you apply.
That’s because inquiries fall off your report after two years. So whether you apply for one card every month or six cards every six months, it’s the same number of inquiries in the end.
So unless you’re literally one inquiry away from being in the “rejection” range of credit scores — in which case I really think you should reconsider applying for cards — it shouldn’t make a difference.
Why should you spread out credit card applications?
So what are the benefits to spreading out credit card applications?
Spreading out minimum spend requirements
There are some amazing credit card offers out there right now with sizable minimum spend requirements, like the:
- Citi Executive AAdvantage World Elite Mastercard — 100,000 AAdvantage miles after spending $10,000 within three months, plus $200 statement credit
- Ink Plus® Business Credit Card — 60,000 Ultimate Rewards points after spending $5,000 within three months
- Ink Bold® Business Charge Card — 60,000 Ultimate Rewards points after spending $5,000 within three months
And realistically, it’s a lot easier to tackle these cards one at a time in terms of reaching the minimum spend.
Applying for the best offers as they come up
She wanted to know whether to wait to apply so she could apply for multiple cards at once, or get this one while it still has the higher bonus.
If you’re locked into a “cycle” of applying for chunks of cards every few months, you have less flexibility to take advantage of limited time offers when they come up, so it can make sense to spread applications out.
At the end of the day, twelve new cards a year is still twelve new cards a year – whether you applied for them in batches every 90 days or one every month.
This hobby is constantly evolving.
There’s a lot of great advice out there, though as technology advances and our understanding of credit reporting improves, it makes sense to sometimes stop and reconsider conventional wisdom.
What do you think? Is there any merit to going out of your way to apply for multiple credit cards in a day anymore?