Getting a credit card exclusively for the sign-up bonus

Question

There are quite a few credit cards with exceptional sign-up bonuses (and then fairly average terms). If I signed up for one, fulfilled the spending conditions for the signup bonus, used that bonus, paid off the card and then cancelled it immediately after, would there be a significant impact on my credit history?

I suppose it would divert spending away from my primary credit card (the one I never close), which would reduce slightly the spending history I have on that card. Essentially, the record of my spending on these auxiliary cards would be erased when those cards were canceled. But is there a penalty to my credit score for closing a card beyond the loss of history that was on the closed card?

Answer 1

If you open a new credit card account and close it soon after, the net change in your utilization % will be zero because it increases when you open the card and decreases by the same amount when you close it.

However, the average age of accounts (AAoA) decreases when you open the new card and does not change when you close the new account (this is true for FICO but not all models). Therefore after opening and closing the new card your AAoA goes down and stays down, but continues to age over time and slowly ticks back up to where it was before you opened the card.

As for if it's worth it, AAoA is a small % of your total score (15% for FICO) so opening and closing a few cards now and then shouldn't affect your score very much.

Side note: I've heard (but have not tried it myself) that you could reverse the decrease in AAoA by contacting the issuing bank and asking them to completely delete the closed account from your credit report. Most people advise against closing the account to begin with, and even if you do they'd also advise against removing it because over time the AAoA will continue to increase. However, if you already have a strong history with multiple old accounts and your AAoA will increase by deleting closed accounts from your report, then it couldn't hurt to try. Typically you would ask the credit bureaus to remove accounts from your report rather than the issuing bank, however the bureaus are less likely to remove correct information that is also non-negative, so this is why it is suggested to ask the CC issuing bank instead.

Answer 2

Signing up for credit cards solely for the sign-up bonus is quite common and when done responsibly can produce great returns while not seriously impacting your credit. I've opened ~30 credit cards over the last four years solely for the sign-up bonus and have been able to maintain a 770-800 FICO score.

As far as the impact of closing credit cards, there are a few effects:

1. Reduces your age of accounts (longer age is better)
2. Reduces your available credit
3. Increases your credit utilization (lower is better)

Personally I try to keep all my cards open as long as possible until the annual fee comes due, and then I ask the bank to switch me to a fee free version of the card so I can keep it open indefinitely. This raises my total available credit over time and reduces my credit utilization. It also helps my build my credit history long term.

There was a good article on TPG this week that claims that closing accounts in the short term doesn't affect the "age of accounts" negatively in most cases. I still prefer to keep accounts open as long as possible though.

One other note: I have a general rule that opening a credit card account should have a return of at least $400. Many travel credit cards offer that level of return in form of points or cashback. Avoid lower bonuses if possible. Frequent Miler has a fairly complete list of available offers.