New blog article: How Applying for Multiple Credit Cards Affects Your FICO® Score

[Elizabeth_FICO]

Hello everyone! If there's a new blog article that I think you guys might like I plan on posting it in the Forums.

This week's article is: How Applying for Multiple Credit Cards Affects Your FICO® Score

Let me know what you think about the article.

For more content don't forget to check out our blog.

[coldfusion]

Like the article very much,  but I do have a concern about the comment "which means it's generally good to hold onto old credit cards and to use them periodically, say once a year, to keep them active."

Emperically it's fairly well established that this type of cadence has in increased risk of triggering a credit limit decrease or closure altogether from lack of use especially if the card has no annual fee, which is probably the typical senario for the likely target demographic of the article.  In some cases the issuer even unilaterally takes action without warning the cardholder ahead of time of a potential status change unless increased activity on the card is seen.

I'd suggest changing that to something more like "say once every 3 months" as that more accurately approximates a cadence nowhere as likely to draw scrutiny due to inactivity. 

[Aim_High]

Overall, it's a good high-level overview of the topic, @Elizabeth_FICO.

The point that stood out to me the most that needs addressing is comments about utilization. 

"For example, if you have just one card with a $5,000 balance and a $15,000 limit, your credit utilization ratio is roughly 33%. Add a second card with a $4,000 balance and $5,000 limit, and your ratio is 45%. The lower your ratio, the better it is for your FICO Scores."

While this is true, it focuses exclusively on the impacts of total utilization and ignores the impact of individual account utilization.  It also focuses on the negative aspect of adding debt with new accounts instead of first pointing out that adding additional lines of credit WITHOUT adding debt can allow someone to spread out their monthly charges more evenly across accounts.  Doing that protects both individual and total credit utilization, as well as possibly building lender diversity and adding additional payment history which could benefit scores.  In all, I think this example is terribly misleading.  Having a $4K balance on a $5K card is 80% utilization, which is horrible, and no article should use an example like that without focusing on the impact of both individual and total utilization.  A better example would be to start that a consumer has only one credit card with a $4K balance on a $5K limit, which would be 80% utilization.  But if he were to add another card with a $7K limit and spread the balance, he could reduce his overall utilization to 33% as well as the utilization on each card.

The article also doesn't point out that the "Length of credit," "New credit," and "Mix of Credit" factors are minor elements and only account for 10% to 15% of score each.  So the "length of credit" penalty for adding new accounts is minor and temporary.  It may even be irrelevant if someone doesn't plan to apply again for credit for another year or two.

Finally, I would spend a little more time focusing on the careful analysis of credit needs.  The author says "if you spend a lot on ____" but that can be subjective unless someone takes a hard look at their budget and actual spending patterns.  Most people aren't like those on our forum who want and will tolerate many cards and pools of rewards.  The general population needs to evaluate more carefully the few cards they really value most highly.  And the author should caution them about the risks and complications of adding more rewards cards than their spending will comfortably support.  That's a balancing act many of us face.  Diluting reward pools among too many cards or types of points can add unnecessary complications and make redemption challenging.  That's especially relevant for cash back cards with minimum redemption thresholds or for travel point systems where typically the points much be saved over the long term for meaningful redemption.

[SecretAzure]

This was a good read. I like how it seems completely comprehensive from a begginer's point of view yet has sprinkles of lesser known credit facts for those who've had credit, even great credit, for years.

I particularly enjoyed the section on Average Age of Accounts and the example used. While AAOA is typically a medium-important section, it should not be under-stated and you can plainly see with this example how applying for just 2 cards in quick succession can tank the apparent strength of your credit profile.

I want more!