Impact on score of utilization vs age of credit vs # hard pulls

[Anonymous]

Hi  All,

I'm being tempted by some rewards travel credit card offers and want to unerstand the likely impact on my score.

Here's my situation:

• Score: 768
• Currently have 3 active Chase credit cards:
  • One primary card (6 months old)
  • Two other cards just with small direct debits (both 5 years old).
• Credit utilization is 8%.
• 100% payment history and no derogatory remarks.
• One credit inquiry.

Pros of obtaining a new card:

• Improves my Credit Card Utilization ('high impact' on score)

Cons: 

• Would add another Credit Inquiry ('low impact') on my account.
• Will decrease my Age of Credit History ('medium impact') - this is currently 3 years.

Net-net what is the likely impact if I were to open 1 (or more) new cards? Thanks for any guidance!

Finally, and probably a dumb question, I presume there is no risk to my credit score by taking advantage of bonus offers to open new checking accounts (Wells Fargo, HSBC). Is that correct?

Best regards,

GettingThereSlowly

[Anonymous]

Welcome to the forums!  Great questions.  My responses below in blue.

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@Anonymous wrote:

Hi  All,

I'm being tempted by some rewards travel credit card offers and want to unerstand the likely impact on my score.

Here's my situation:

• Score: 768
• Currently have 3 active Chase credit cards:
  • One primary card (6 months old)
  • Two other cards just with small direct debits (both 5 years old)

Can you clarify that these Chase cards are your only cards?

• Credit utilization is 8%.
• 100% payment history and no derogatory remarks.
• One credit inquiry.

Pros of obtaining a new card:

• Improves my Credit Card Utilization ('high impact' on score)

Increasing your total credit limit will indeed lower your CC utilization.  But two quick points:

    (1) You can lower your CC utilization to 1-3% any time you choose by paying down your debt.  Thus there's never a need (from a scoring perspective) to increase one's credit limit.  Expanding your capacity to incur debt is one of the worst solutions to the problem of too much existing debt.

    (2) Your current total utilization is 8%.  The point at which penalties begin for total CC utilization is 8.99%.  Therefore lowering your current CC utilization will not improve your score at all.

There are some long term scoring benefits that you do not mention to opening a fourth card.  If you do not have many total accounts (1-5 total, counting closed ones) then opening a new account will make your profile thicker, which FICO and Vantage both like.  They also make your profile more stable down the road and less vulnerable to being affected when you do add an account or two.  (Less impact to AAoA, for example.)

Cons: 

• Would add another Credit Inquiry ('low impact') on my account.
• Will decrease my Age of Credit History ('medium impact') - this is currently 3 years.

It will not decrease your Age of Credit History.  Thjis corresponds to the factor "Age of Oldest Account."  Opening a new account will not affect how long you have been building credit (Age of Oldest).  What it will affect is a related factor, namely AAoA or Average Age of Accounts.

There are other scoring factors that may be negatively affected besides the two you mention.  For example "Age of youngest account" will go to 0 months.  Also "percentage of accounts that are new" will go up.  Both are factors in all FICO models.

Net-net what is the likely impact if I were to open 1 (or more) new cards? Thanks for any guidance!

Finally, and probably a dumb question, I presume there is no risk to my credit score by taking advantage of bonus offers to open new checking accounts (Wells Fargo, HSBC). Is that correct?

Indeed there is no risk.  More than that, since it sounds you are thinking about chasing promotional offers for bank accounts and similar offers for credit cards, you may be happy to hear that the two things can have a tremendous synergistic effect -- i.e. that each can help the other.  Specifically, depending on the offers you choose, you can open a credit card with a big signuop bonus -- but there will be a requirement that you meet a certain "minimum spend" to get that bonus.  Happily, you can then open a bank account with a big promotion and use the new credit card to "fund" the initial deposit into the bank account, which if you rsearch it carefully will likely count toward the minimum spend req on the CC (and will code as a purchase rather than a cash advance).

Best regards,

GettingThereSlowly

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 As long as you are not planning to buy a house or your first car in the next 12 months, the pros definitely outweight the cons.

PS.  Do you have any open installment loans?  If not, we can suggest a way to improve your score.

PPS.  in the 45 days prior to any credit application (an important card, a car, a house) you can improve your score by making sure that all your cards have a $0 balance except one.  The remaining card should have a small positive balance, like $10-20 or so.

[SouthJamaica]

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@Anonymous wrote:

Hi  All,

I'm being tempted by some rewards travel credit card offers and want to unerstand the likely impact on my score.

Here's my situation:

• Score: 768
• Currently have 3 active Chase credit cards:
  • One primary card (6 months old)
  • Two other cards just with small direct debits (both 5 years old).
• Credit utilization is 8%.
• 100% payment history and no derogatory remarks.
• One credit inquiry.

Pros of obtaining a new card:

• Improves my Credit Card Utilization ('high impact' on score)

Cons: 

• Would add another Credit Inquiry ('low impact') on my account.
• Will decrease my Age of Credit History ('medium impact') - this is currently 3 years.

Net-net what is the likely impact if I were to open 1 (or more) new cards? Thanks for any guidance!

Finally, and probably a dumb question, I presume there is no risk to my credit score by taking advantage of bonus offers to open new checking accounts (Wells Fargo, HSBC). Is that correct?

Best regards,

GettingThereSlowly

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1.  If you open new cards I think your score will feel negative pressure. Since your utilization is low, the reduction in utilization will have less impact.

2. Opening checking accounts would have no bearing on your FiCO scores.

[Subexistence]

Indeed there is no risk.  More than that, since it sounds you are thinking about chasing promotional offers for bank accounts and similar offers for credit cards, you may be happy to hear that the two things can have a tremendous synergistic effect -- i.e. that each can help the other.  Specifically, depending on the offers you choose, you can open a credit card with a big signuop bonus -- but there will be a requirement that you meet a certain "minimum spend" to get that bonus.  Happily, you can then open a bank account with a big promotion and use the new credit card to "fund" the initial deposit into the bank account, which if you rsearch it carefully will likely count toward the minimum spend req on the CC (and will code as a purchase rather than a cash advance).

Best regards,

GettingThereSlowly

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Is there any limitation to simply depositing the minmum amount into a bank account? Does it also give cashback?

[Anonymous]

Hi SubEx.  Can you try asking your question again?  I did not understand it.

[Subexistence]

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@Anonymous wrote:

Hi SubEx.  Can you try asking your question again?  I did not understand it.

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If you make a deposit using a credit card in order to fund a bank account, can you earn cash back? Also are there any limitations to this practice of bonus churning because it sounds too good to be true?

[Anonymous]

Hi SubEx.  I understand now.

Well, there three players in this:

      You (the card owner)

      The card issuer and the specific product (Chase Sapphire Reserved, Citi DoubleC, etc.)

      The merchant (the bank or CU that is accepting CC funding as the method of making your first initial deposit)

You are the constant so I'll just focus on the last two.

You ask if there are any limitations.  Sure. 

Some merchants (i.e. banks/CUs) refuse CC funding as an option altogether, or if they permit it, limit it to a very small amount (e.g. $50).  In practice these two amount to the same thing, which is to neuter any real use of opening bank accounts to burn a portion of one's Minimum Spend.

Some merchants permit CC funding but refuse a whole class of cards (it's fairly common for a bank that permits funding to refuse the use of Amex, probably because of its higher swipe fees).

Some merchants permit the use of the CC you have in mind but code it as a Cash Advance rather than a Purchase.  This at minimum costs you a fee and might cause the transaction to not count toward your CC minimum spend (depending on the fine print for the promotional bonus associated with that card).

Some card issuers (for that product) will render all CC funding as a Cash Advance rather than as a Purchase. 

All merchants permit this as a one-time event only -- it refers to your first initial deposit into the account.  You can't make multiple deposits using a CC into a bank account.  Funding a bank account by definition means how one makes one's first initial deposit into that new bank account.

This may sound like a lot of restrictions, but even so, it is not hard with a little research to find a bank that, given some particular card and issuer, will permit you to fund it, will permit a decent amount, will code it as a Purchase rather than a Cash Advance.  (Much much harder with an Amex, but not too hard with most personal VIsa or MCs.)  If you become interested in this hobby, your best guide to it is Doctor of Credit:

http://www.doctorofcredit.com/a-beginners-guide-to-bank-account-bonuses/

http://www.doctorofcredit.com/best-bank-account-bonuses/

http://www.doctorofcredit.com/does-funding-a-bank-account-with-a-credit-card-count-as-a-purchase-or-...

By the way, we are unfortunately in the fading years of this hobby.  At one time there were fewer restictions.  Some banks back in early 2015 placed no limit whatever on the size of your initial deposit -- e.g. Citi.  I once CC-funded a checking account with 17k andit  counted as a purchase -- for which I earned all the rewards associated with that 17k as well as meeting the minimum spend.

Best of luck...