Will Signing Up For Credit Cards Hurt My Credit Score?

I’ve been travel hacking for several years and the response I get most often when explaining to people how they can join in on the fun is “I’d like sign up for credit cards and travel the world for cheap, but I don’t want to mess up my credit.”

When I started taking advantage of credit card perks and sign-up bonuses, I too was concerned how signing up for multiple credit cards would affect my credit score. After over three years into this “hobby” I’m happy to report that my credit has never been better AND it has actually increased since signing up for a ton couple travel rewards credit cards. 😉

Credit Score

Factors Affecting Credit Score

Directly from myFICO below are the five factors that comprise a credit score:

  1. Payment history
  2. Amounts owed
  3. Length of credit
  4. Credit mix
  5. New credit

Each factor is listed in descending order based on it’s overall effect or importance.

Payment History

This is HUGE. 35% of your score is based on whether you pay your bill on time. Avoiding late payments and paying your statement balance in full is crucial for maintaining “excellent” credit. *I will add that unless you have the discipline to manage credit cards and keep an A+ score in this category, travel hacking is NOT for you.

Amounts Owed

The second most important element for maintaining a travel hacking worthy credit score is credit usage or “credit utilization rate.” This is just fancy wording for how much of your available credit is being “used.” For example, if you have only one credit card with a credit line of $5,000 and you hold a $2,000 balance on it, your utilization rate is 40%. Having large balances looks risky to creditors so it is suggested that credit usage be kept under 10% but preferably under 2%.  (More on this later)

Length of Credit History

Younger people will be at a disadvantage here but over time this will improve. We all have that (insert any retail store) credit card we opened when we were 16 because we thought it was cool which is now collecting dust in our dresser. Keeping these and other no annual fee cards open will boost the average age of  your credit and in time, signing up for new credit cards won’t hurt your score as much.

*I’m going to pause here to point out that these three categories alone make up 80% of the overall credit score. If you have a handful of credit cards, pay them off on time, avoid maxing them out, and keep older accounts open long term, obtaining an excellent credit score is inevitable. This leaves the last two credit score factors…

Credit Mix 

A small portion of your credit score is determined based on account variety. Credit cards, auto loans, personal loans, and mortgages are a few examples. Creditors like to see an ability to manage different types of accounts, but is it worth taking out a loan for a car to increase your score a few points? It is possible to have an awesome credit score with only a couple different types of accounts.

New Credit

One of the least important, but ironically the most mentioned factor in affecting credit scores is new credit, or credit inquiries. When you sign up for a credit card your score will take a hit for a couple of points. That’s it. After a few years the inquiry will fall off and your score will most likely improve because of it. Let’s take the same example I used above and let’s add a new credit card with a credit line of $10,000. With a balance of $2,000 the utilization rate decreases to 13%. As I mentioned earlier, a low utilization rate helps your credit far more than signing up for a new card hurts your credit.


Not bad after three years of travel hacking

How Do I check my Score?

There are many options for checking your credit score and I suggest using several methods, and comparing them because they are not completely accurate. I like to save money, so I take advantage of the many free credit monitoring websites. Here are two popular ones:

Another option is to check your account with one of the many credit card issuers that provide credit score snapshots. American Express, Barclaycard, Citi, and Discover (step up your game Chase) offer a summary of your score with advice on how to improve it. Here’s an example from Discover.


Bottom Line

Before I started signing up for credit cards I too was concerned how it might affect my credit score. I’ve signed up for multiple credit cards in the past three years and my score has gone from the low 700’s to over 800. During that time I also got approved for a personal (recreational) loan which is one of the most difficult loans to get approved for. I’d argue that signing up for credit cards helps your credit score as opposed to hurting it.

There are many opportunities to be had using credit card perks and rewards. When managed well and monitored carefully, a credit score can prove to be a valuable asset. Are you worried about what signing up for a credit card might do to your score? Do you have any question/concerns? Comment below.

3 comments on “Will Signing Up For Credit Cards Hurt My Credit Score?

  1. Oh my goodness! Impressive article dude! Many thanks, However I am experiencing problems with your RSS. I don’t understand the reason why I cannot join it. Is there anybody getting similar RSS problems? Anyone who knows the solution will you kindly respond? Thanx!!

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