Can Opening A Credit Card for Hotel Points or Frequent Flier Miles Damage Your Credit?

Can Opening A Credit Card for Hotel Points or Frequent Flier Miles Damage Your Credit?

The risk is less than you think, but pay attention to your utilization ratio when closing a card.

When I mention an incredible travel rewards credit card deal to friends, I frequently hear the response: “I would love the benefit, but can’t risk damaging my credit.”

There are two types of people who should not open new credit cards under any circumstance – those who do not pay their bills on time (or run a credit balance) and those who spend more as a result of having a credit card (often to reach promotional spend amounts).   If you fall into either one of those categories, you will come out a loser by opening a new credit card, no matter what type of promotional bonus you are receiving or how many travel points or miles you are accumulating through spend.  But, so long as you pay your bills on time, there is very little risk in opening a new travel rewards credit card in order to receive a sign up bonus and in order to align your rewards with your travel interests.

In fact, having more available credit can actually improve your utilization ratio and improve your credit.  Someone who spends $10,000 a month on credit cards and pays their balance in full, but has $200,000 in credit is utilizing only 5% of their available credit.  That same person who has $20,000 in available credit is utilizing 50% and therefore has a higher utilization ratio.  A low utilization ratio (having credit and not using it) demonstrates responsibility with credit and leads to a higher credit score.

By the same token, the more important factor to consider in your credit is not the effect of opening a card, but that of closing a card.  If someone’s utilization ratio were to rise from, say, 5% to 50%, his or her credit score could be adversely impacted.  If you cancel a card, specifically one with a very large credit limit, it makes sense to call the issuer and ask that the credit line be reassigned to another card with that same issuer (the process of moving the credit and cancelling the card can often be accomplished by asking for it in the same call when you cancel the card, but it cannot be done after the card is cancelled).  Chase and Citibank are generally very accommodating to this request; Amex, not so much.

Americans generally pay too much attention to their credit score.  It is important to recognize that a credit score of 760 or above is always going to qualify you for the best lending rate on a mortgage (and not going to raise any red flags in a job interview, etc.).  Getting a new credit card, resulting in a “hard pull” on your credit, is never going to impact your credit more than temporarily, and never more than by a couple of points.  As long as your credit score has a few points of margin above 760 and as long as you are not imminently seeking a new mortgage, there is unlikely to be a material or deleterious impact in applying for a new credit card. 

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