topic Should my next card be a credit or charge card? (looking for second opinion) in General Credit Topics

Should my next card be a credit or charge card? (looking for second opinion)

Anonymous — Wed, 04 Oct 2017 12:29:29 GMT

Warmest greetings to everyone on this forum. I'm new around these parts and am hoping for some general advice.

I currently have 2 credit cards (both run of the mill rewards cards from BoA and Wells Fargo) and a total of 4 open lines of credit. My available credit is about $8,000 and sits at 0% utilization 95% of the time. I always pay off my full balance at the end of the month without exception. My mid-term plan (next 12 months) is to expand my total number of credit cards to further improve my available general credit as well as credit score. I'd be looking to add some of the popular reward credit cards (Venture, DoubleCash, Freedom, etc.) and an AmEx Gold or Platinum card (I travel 7-10 times/year). My FICO is right around 780 at the moment.

Since I have so few credit cards, I wasn't sure if my immediate priority needs to be adding cards that increase my available credit (standard credit cards) or if adding something like an AmEx Platinum is good enough at this point as simply an additional line of credit on my credit history? Considering the holiday season is fast approaching, I'm pretty sure I could get quite a bit of benefit out of the travel benefits and holiday shopping would make hitting their new member signup bonus spend requirement. But I could also get benefit out of one of the 5% cashback or double cash cards.

So I'm wondering does it matter much which direction I take with this next card as a credit vs charge card? Does either offer more meaningful benefit to my credit score? I would prefer to go with one of the AmEx cards for the rewards, but if it is unwise I will focus on standard credit card options for now. I'd like to lean on your collective experiences and wisdom here.

Also, related: I was looking at my NerdWallet account -- more specifically, their "credit card tips" section and it suggests that applying for 1 new card would drop my FICO by ~6 points (and 2-4 would drop it by ~12 points), while opening a new card with any limit would only improve my FICO by 4 points. How long does that net loss of points take to recover and begin working to improve my credit? And is there a recommended cadence for how often to apply for new cards if the goal is to add say 4 new cards in total? One every 3 or 4 months? Every 6 months?

Any insight will be greatly appreciated. While I've tried to take good care of the credit I have, I'm only now beginning to understand more about building, rewards and my options. Like many here, my goal is to get to 800+ sooner or later and I figured I mine as well start working on it now.

Thank you in advance.

Re: Should my next card be a credit or charge card? (looking for second opinion)

Anonymous — Wed, 04 Oct 2017 12:51:10 GMT

FICO gives you "free" points for having your first 3 cards. So the first 3 are earned penalty free.

Having a charge card with travel points only makes sense if those points are redeemable by you for better than 2.0% cashback cards out there. Only you can do that math.

I personally would suggest doing a charge card if it makes sense but remember you have to pay it off each month. Some charge cards will eventually offer you the option to revolve a balance for a period of time, but don't count on it.

Also, you should consider doing the AZEO method to maximize your FICO scores before applying.

In addition, if you don't have an installment loan reporting, do the Alliant SSL Technique ASAP to get even more "free" FICO points!

Re: Should my next card be a credit or charge card? (looking for second opinion)

Anonymous — Wed, 04 Oct 2017 12:54:42 GMT

There would be no difference at all in adding a credit card verses a charge card. Simply go with what you feel on that front, as both will impact your credit profile the same way.

Second, if you are allowing all $0 balances to report on your cards you are taking a FICO scoring penalty of about 20 points. This means that you could be at 800 now instead of 780. In order to accomplish this, you allow a small balance of $5 or so to report on just ONE of your credit cards. It doesn't matter which one. Once that balance reports as something positive rather than $0, you'll get an instant score boost.

Don't listen to what simulators say, as they can be very misleading. Simulators don't take into consideration enough variables to give an accurate prediction. One person may see a 6 point drop from adding a new card. Someone else may see ZERO drop at all. Another person may see a 15 point drop. It's all very profile-specific and something that simulators can't possibly be accurate with.

If your goal is to add 4 cards, I'd personally do a "spree" and add all 4 at the same time rather than 1 every few months or whatever. Adding them all at once will allow them to age together and the clock starts at the same time for all of those accounts, all of the inquiries (which can impact score for 1 year).

As far as when you can expect your scores to rebound, from my experience I've found that 3-4 months is about all it takes on a thick/aged file. I've done sprees (3-4 cards) twice now and both times in 3-4 months my scores were back to where I started and within 5-6 months they were higher. On a thinner/younger file it could take a little longer, of course.

Also, do you have an open installment loan on your credit report at the moment? If not, adding the SSL technique would yield you another 30 points.

Re: Should my next card be a credit or charge card? (looking for second opinion)

Anonymous — Wed, 04 Oct 2017 12:58:43 GMT

Thank you for the feedback. I'm not familiar with the AZEO method or the Alliant SSL Technique, so I'll be sure to look both of those up today. Cheers.

Re: Should my next card be a credit or charge card? (looking for second opinion)

Anonymous — Wed, 04 Oct 2017 13:03:12 GMT

Thank you, Brutal.

I had no idea about the $0 balances stuff. I'll recitfy that this month.

Also, doing them all at once and getting the age clock started makes a ton of sense.

I do not currently have an open installment loan. I will look into that ASAP! I just got here and you guys are already amazing.

edit: sorry; not sure how to combine posts on this forum just yet.

Re: Should my next card be a credit or charge card? (looking for second opinion)

Anonymous — Wed, 04 Oct 2017 13:13:24 GMT

The AZEO Method + the Alliant SSL Technique are both really useful for everyone but especially for people who can pay off all their debt every month. It really makes a huge difference in credit scores no matter if you're in prime FICO territory or subprime. I firmly believe my scores went up almost 50 points just doing both of those together.

Note for the AZEO Method: you want a small balance to report at statement cut, but then after it reports, IMMEDIATELY pay it to $0 so that you don't pay interest. I don't use Chase cards for the AZEO account because Chase will update credit reports if paid to $0 midcycle and that screws up the AZEO benefits.

If you have a budget of how you spend your money each month, you need to figure out where you spend your money and then figure out what cards make the most sense in terms of cashback or award redemptions. Everyone is different and your spending categories will tell you what card to get next.

Maxing out your rewards is key here since you obviously can manage your debts and not pay interest. Earn as much cashback as you can without overspending needlessly or paying interest ever!

Re: Should my next card be a credit or charge card? (looking for second opinion)

Anonymous — Wed, 04 Oct 2017 14:16:06 GMT

Question: should I be concerned that applying for 2 or 3 cards quickly might make lenders nervous?

Re: Should my next card be a credit or charge card? (looking for second opinion)

Anonymous — Wed, 04 Oct 2017 14:48:31 GMT

If you're looking to apply for a mortgage in the next 6 months, you don't want any new inquiries or at least expect to explain them to the lender.

If you aren't applying for a mortgage in 6 months, you want to maximize FICO score now so get 3 credit cards + install loan reporting ASAP.

Re: Should my next card be a credit or charge card? (looking for second opinion)

HeavenOhio — Wed, 04 Oct 2017 15:57:02 GMT

Two or three should be fine. A half a dozen or more might cause lenders to notice.

Re: Should my next card be a credit or charge card? (looking for second opinion)

Anonymous — Wed, 04 Oct 2017 16:24:08 GMT

@Anonymous wrote:
Question: should I be concerned that applying for 2 or 3 cards quickly might make lenders nervous?

I wouldn't be. Remember all that a lender can see is inquiries at first until the accounts show up on your credit report, which usually takes around a month. Some creditors are a little quicker, others like Amex are known to take 2 months at times. Also keep in mind that the inquiries you take on from a 3-4 card spree more than likely will land on different bureaus, so the probability any one lender seeing more than 1-2 inquiries is pretty slim. Several new accounts have a greater chance of raising an eyebrow than inquiries alone and like I said they won't see any new accounts.

It's also a best practice to consider which lenders are most "inquiry sensitive" prior to apping and app in the order of most sensitive to least. Citi is historically known to be quite inquiry sensitive for many, so if you were considering a Citi app for example I'd do that one first, followed by the next most inquiry sensitive, then the least.

Re: Should my next card be a credit or charge card? (looking for second opinion)

Anonymous — Wed, 04 Oct 2017 16:26:02 GMT

Outstanding. I'll get right on this stuff. Thank you, everyone!

Re: Should my next card be a credit or charge card? (looking for second opinion)

HeavenOhio — Thu, 05 Oct 2017 14:48:28 GMT

Regarding the question of credit vs. charge card, I don't like the idea of not knowing what a charge card's "unspoken" limit is. And I don't want to pay an annual fee.

On the other side of the coin, many find the perks gained from a charge card to be worthwhile. And they like the idea of charges not counting toward one's monthly utilization.

It really boils down to which choice is the better fit for you.