What effect will credit card churning for frequent flyer miles have on my credit score?

Question

We've all heard about the people who have tons of credit cards - getting new ones for the sign-up bonus (25 to 50 thousand miles, typically), either never using them or charging minimal amounts and paying them off in full every month, and then canceling them before the annual fee is due.

Some people claim to have had over 100 cards in the past X years by doing this, and as a result have millions of miles to their name.

What impact would this have on one's credit score? I know that in general canceling a card is bad because it decreases your available to used credit ratio, but in this case you're adding a few, canceling a few, etc. - are there any negatives to frequently canceling cards and getting new ones?

Answer 1

The short answer is that the longterm impact to your credit score is negligible.

The long answer is that if you open 4 or 5 new cards in a month your score will decrease from the credit inquiries and from a decrease in your average age of accounts. The damage really is pretty minor 20-30 points off your FICO on the high end (the more old accounts you have the smaller the effect is) and temporary after a year you will be close to your original score.

The only time I would worry about the effects opening a bunch of accounts is if you are planning on getting a mortgage in the next year even then a couple of cards probably won't hurt unless you are within a couple months of when you get the mortgage. For reference I had 7 or 8 new accounts within the past year and my FICO was still good enough to get the best rate on my mortgage.

This is all based on my own personal experience, I have opened 5-15 new cards a year for bonuses and 0% offers for the past 5 years or so and my FICO score varies between 740 and 770.

Answer 2

It depends a lot on how many accounts you open and close it also will depend on the rest of your credit report as well.

Too many hard inquiries are bad, but there is no science to how many is "bad" (it is up to the lender how negative they are).

But if you limit yourself to doing this a couple times a year I don't think the hard inquiries would put off many lenders.

The other major areas this can affect your report is in both your utilization and your credit age areas. Opening and closing cards really quickly can bring down the average age of your credit lines and have a negative impact on your report. If you carry a large balance on your "Stable" cards loosing the headroom from the others can hurt you as well.

You would best play it by having a stable of cards that you are in it for the longterm with to soften the blow.

Answer 3

The credit score will be affected by the inquiries and new accounts, which usually bring the score down for some short (couple of months) period of time. If it is done repeatedly, I expect creditors not to open new accounts any more because of too much inquiries (some creditors put a limit on how many inquiries they're willing to see in the report before approving credit). So I don't think it can be done indefinitely.

Answer 4

Assuming you have excellent credit, the rate of opening the cards and subsequently close them is the risk factor.

IMO, if you open 1 credit card per quarter, you're ok from a score POV. I believe that you are not penalized for closing a card due to refusal to pay an annual fee. So if you let them lapse, and leave the accounts without annual fees open, you should be ok.

Doing this at a scale where you literally have hundreds of account open is probably not a smart move -- you're making yourself an outlier. Underwriting standards change all of the time, and who is to say that the Fair Issac people won't change their scoring criteria?

Also, for some insurance and larger loans like mortgages, business loans and some car loans, an actual human looks at your credit report during the underwriting process and has broad discretion to judge the contents of that report. Have 100's of revolving accounts looks odd, and will probably result in a negative perception of you.

There are more productive ways of getting incentive points/miles.