Does Applying For Credit Cards Hurt Your Credit Score?

I know, I know.  Most of the big guy blogs will tell you that it does not.  *I* have even said it does not.  And that is mostly true.  But other things you might do in addition to applying for multiple credit cards can (and likely will) affect your score.  And not always in a positive way.

Before I go any further I want to stress that I am not an expert on credit, credit scores, financial management, banking, mortgages, lending, or veterinary medicine.  If you have serious questions or concerns about your financial situation or credit PLEASE consult a professional.  I have just recently noticed some things in our personal credit profile and I wanted to share that with you.

Various Credit Cards

Prior to Barclay’s offering free FICO credit scores with their credit cards, I did not have access to my score.  I relied on the FAKO score via Credit Karma when applying for cards.  That isn’t necessarily bad, but it also isn’t necessarily accurate.  For example, my FAKO score in May 2013 was 781 while my FICO score was 816.  That’s quite a difference.  But how accurate is a FICO score anyway? You still don’t really know which scoring model or bureau a lender is pulling from.  It all gets quite confusing.

Our Story

My “heaviest” years applying for credit cards was between 2011 and 2013.  Unfortunately, at that time I relied on Credit Karma for my credit scores and did not know what my actual FICO score was.  But, during my first small round of applications in 2014 I had access to our FICO scores and was quite pleased to see that mine was 816 and Matthew’s was 800.  Not bad, considering all the credit cards (and miles and points!) I had accumulated in the past few years!

credit-drop

 

In 2014, things started to change.  Both of our credit scores started falling and right now they both sit exactly 16 points lower than they did 1 year ago.

LaurascoreMine was a steady, gradual decline.  Matthew’s had a pretty big dip in the fall.

matthewscoreSo what happened?  What changed in 2014?

Well…a few things.  The biggest being that we refinanced our house in June 2014.  This hit our credit as a “new” loan rather than the same loan with changes in terms.  We also took some cash out of the refinance to have hardwood floors installed.

Other than our mortgage, the only other debt we have is a Wells Fargo financing account from Mattress Firm.  We bought a Tempurpedic bed a few years ago and used their 5 year “same as cash” financing offer.  It is almost paid off and has a minimal affect on our credit score.

When it comes to credit cards, I have 24 open accounts (this includes being an “authorized user”) and I am using 2% of the available credit.  Matthew has 21 open accounts (also as “authorized user”) and is using 3% of the available credit.  All of our bills are paid in full every month.  We have no late payments, delinquencies or collections on our credit report.

So let’s look at the churning we did in 2014, as I think this is responsible for the drop in credit scores.

Matthew applied for only 3 cards in 2014.  A Citi Executive card in Feb 2014, another one in June 2014 and a Chase Marriott Visa in Sept 2014.  This was $55,000 worth of credit extended.   In May 2014 he canceled his SPG American Express card ($23,000 limit) and in August he cancelled his original Chase Marriott Visa ( $18,900)  That means his total available credit decreased by about $13,000 while his debt increased with the refinancing of the mortgage.  I’m GUESSING this is what caused the big drop in Sept 2014 and then the rebound when things shook out a bit.  But then in January he cancelled his Bank Of America Alaska Airlines card (and $18,000 credit line) and the score fell again.

I think Matthew needs to apply for a few cards, stat!

I had a slightly more busy year.  I applied for 7 cards (1 was a business card):

  1. Citi AA Executive  March 2014(+19,000)
  2. Chase Sapphire Preferred May 2014 (+16,000)
  3. US Bank Club Carlson May 2014 (+22,000)
  4. Wells Fargo AMEX June 2014 (+6,900)
  5. AMEX Skymiles Gold Business Aug 2014 (+20,000)
  6. Chase Marriott Premier Aug 2014 ($20,000)
  7. Chase Southwest Premier Personal Dec 2014 ($5,000)

I cancelled 4 cards:

  1. Capital One Venture Apr 2014 (-20,000)
  2. Chase Marriott May 2014 (-20,000)
  3. Citibank AA Visa Sept 2014 (-16,500)
  4. Barclays Frontier MC Sept 2014 (-14,000)

So I gained an additional $38,400 in available credit.  Though some of that was transferred from other accounts.  The Chase Southwest card, for example.  I have a lot of open accounts with Chase so I had to get them to move some credit around to open that Southwest card with the small $5,000 limit.

I really can’t explain the steady decline in my credit score, unless it has something to do with the mortgage, as it is a joint account.

The Take-Away

Your payment history and your amount owed vs utilization are the 2 biggest factors in determining your credit score.  I think it is important to keep track of the credit limit on each of your accounts and make sure things even out when you are canceling and applying for new cards.

Obviously this game is not for everyone.  Fortunately we could afford this dip in our credit scores and still be in the “excellent” range.  Although Matthew is getting close to the edge of excellent, but I think if he gets some more available credit, his utilization rate will go down at least 1% and bump his score up.  At least, that’s what I’m hoping!

I read somewhere that not having a car payment negatively affects your credit score.  I don’t believe that. (where do people get these ideas?) I have not had a car loan in over 6 years! I am really dreading the fact that one is likely in my future in the next 12-18 months.  I love the idea of a new car, but I hate the idea of a payment.  I am going to try (I said TRY) to put some extra in my savings account each month for the next year to hopefully offset the amount of the loan.  The more cash I can pay for a new car, the better!

I am going to take a small break from applying for credit cards this year and let Matthew have all the fun.  I may get a business card or if a really great deal comes along I will jump on it.  But I am going to let my credit rest and see if it bounces back at all.   We do not have a shortage of miles and points at this moment.  According to AwardWallet (< my link, please use it!) we have 46 accounts and 2,031,189 miles and points.  Yay.

Australia 2016!