What are the risks of getting an additional credit card just so my parents get more points?

Question

My father is retired and one of his hobby is to gather as much credit card programs as he can and manage them in a way as to maximize returns and minimize costs. I know that this can be a risky endeavour, but he is rather savvy and has been gaining a lot of miles in the past few years, which fuelled my parent's retirement trips.

Recently he's been very insisting on me opening an account for a credit card on a family plan with him. He says he will pay any expenses and that I don't need to use the card, simply have it. He will then use the miles from the account. I trust my father well enough, I am not scared of him stealing money from me. I also don't care about the miles.

I am however very hesitant in doing so. There's something that feels really wrong about getting a card without using it. A quick check shows me that my credit score shouldn't be affected in the long run, but I'm not convinced.

For context, I am an adult in Canada. I have no share accounts with my parents and don't live with them. I have 2 credit cards I use and my credit score is good.

Answer 1

Here are some of the risks:

• You spend more than you can pay off in a month, wiping out any "rewards" that you earn in interest costs.
• You miss a payment and have a ding on your credit record that takes years to recover from
• You spend more (or your father encourages you to spend more) than you would otherwise because you're "earning miles"

If everything goes great, it can work out. But it doesn't go as planned for everyone, otherwise these banks would go broke on all of these "free rewards" they give out.

Most rewards come at about a 2-5% return rate, meaning that to get $300 worth of plane tickets, you have to spend somewhere between $6,000 and $15,000 depending on how good the reward program is. I've always been of the opinion that I can reduce my spending by more than 5% by being more careful on purchases, and I don't have any of the risks outlined above. If you use the credit card for things that you would have spent the money on anyways (e.g. utility bills) then the risk of overspending is reduced, but every time you make impulse buys that are painless because they just "go on the card", you reduce the effectiveness of the rewards. Meaning, if I spend an extra $10 at the store to "earn miles", I have to spend another $100 to $500 to make up for what I would have not spent if I used cash.

Answer 2

As described, in your situation I don't see any risk at all. Having an open credit card that you don't use usually raises your credit score because it increases the denominator of your utilization percentage. (This is currently true in the US, and AFAIK is also true in Canada.) The bank may run a hard inquiry when you apply which could temporarily lower your score a wee bit, but within a month when it reports the new open credit line you'll likely see an increase. Of course this depends on the amount of the new credit limit compared to the limit of your other two cards, but generally it should increase your score somewhat.

Tip for all credit cards: as soon as you get any new card I recommend turning on text or email alerts for all transactions. This is especially important if you don't plan on using the card, since you may not be looking at statements regularly. This way you'll know right away if the card is ever compromised. For cards you do use, set them up to auto pay (at least) the minimum every month. Of course you always want to pay in full every month, not just the minimum, but you want to auto-pay the minimum so if you ever forget or are unable to make an ontime payment for some reason, the worst case scenario is that you pay one month of interest instead of also potentially dinging your credit report with a late payment that can negatively affect your score for years.

Answer 3

US person here: Your credit rating takes a small short-term ding from doing this, so long as you don't do it too often it's harmless. If you'll give me $50 or more (careful with points, you can't always use them very well) for opening an account I'll take you up on it, set up alerts and throw the card in the drawer. For high enough rewards I've even rearranged spending to claim them. Unless the card is at least as good as the 2% rewards cards I use it never gets used again and in time they close it. (And I have never found a promo offer on a card that gives a general 2%, although two are still around because they beat 2% on certain purchases.)

The existence of a credit card in your drawer is basically harmless, the hazard they pose is if you overuse them.