Maximizing Sign Up Bonuses And Your Credit Score


I get a lot of miles through sign up bonuses. I do so while maintaining a high credit score. How do I do it? I don’t sign up for eight cards with a 25,000 mile bonus, I sign up for two cards with a 100k bonus. In the case of Capital One’s match my miles promotion, I didn’t even have to sign up for a new account, I just asked them to change my existing card to the new Venture product.

What Applying For A Credit Card Does To Your Credit Score

To be blunt, not much. That is because signing up for a new card has both a positive effect and a negative one that cancel each other out. The positive effect is the increase in your available credit. While it doesn’t make sense that increasing your available credit will help your score, it actually does. That is because one component of your score is your credit utilization ratio. For a given amount of debt, the more credit that you have, the lower your utilization ratio. The negative effect is that your report will indicate that you have recently applied for new credit. One credit application, or hit, is negligible. It is hard to say, but even two or three recent hits will have, at worst, a very minor effect on your credit score. Not only that, but the key here is recent hits, so that any negative effects will be very temporary. This is in contrast to missing payment, foreclosures, and bankruptcies that have major and long lasting effects. Essentially, the negative hit is an artifact of the formula they use to calculate your credit score. The idea is that someone applying for a lot of credit in a short period could be in financial distress. The fact that you aren’t will become apparent when your credit utilization declines. A month or two later, your credit score will improve slightly to where it was before, or even better due to the effect of new credit on your ratio.

How I Approach It

Obviously, I am always looking for the best sign up bonuses. I know a lot about how credit scores are created, but my knowledge is not as exhaustive as others. Lately, I have been just applying to two or three new cards a year. That really isn’t much, and I have verified that my credit remains exemplary. One thing I try to do is restrict applications to the same bank. I don’t want too many hits on the largest banks, such as Chase, for fear they will release a new, killer offer that I won’t qualify for. Also, different banks check credit through different agencies, so I further spread my new applications around.

The Big Picture

Really the recent applications and the credit utilization ratios are each just one of several components that each make up only a tenth of your credit score. The big things are obviously to pay your bills on time, and not have too much debt. One could argue that if you follow those two rules, the rest is details. In fact, I am not even someone who religiously checks my credit score or subscribes to a credit monitoring service. That may make sense for people who have a lot of debt and/or are struggling to raise their scores, but not  those factors do not apply to my situation.

Finally, there is no reason for people with good credit to obsess about their scores. Credit works off of ranges. If you are at the top level, above 740 or so, it doesn’t make a difference. You can’t get an A+++ by getting your score over 800. There is no difference in the interest rate, insurance rate, or job offer you will receive for a 820 score versus a 780 score. Yet it is important to have good credit, but there is no award for having the best score.

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