Credit inquiries, which are required anytime you open new credit cards, account for about a tenth of your credit score. Anytime a potential lender requests your credit score, your score will drop a point or two, assuming you have strong credit. Lots of inquiries within a one-year timeframe will hurt your score by more than just a point or two, especially if you have poor credit.
The credit bureaus consider inquiries into your credit score as a potential sign that you might be preparing for a credit card spending spree … or maybe you plan on opening a ton of credit cards because you are experience a financial downturn and need a way to finance your lifestyle as your income is cut. Either way, opening new credit cards results in inquiries, which can be particularly harmful if your credit report is relatively “young.” (See our post about the “Age of Credit Cards.”)
This is yet one more argument against opening new credit cards unless it is part of an overall credit-improvement strategy. If you need to open credit cards so you can have the ideal number of credit cards (See post called “How Many Credit Cards Should I Have?”), go ahead and suffer the damage caused by an inquiry. After all, inquiries only remain on your credit report for two years, and they affect your credit score for only one year.
However, if you are opening new credit cards to take advantage of low interest rates by transferring credit card balances, or if you are offered a discount if you open retail credit cards, think again. Opening these new credit cards will hurt your score and, as the related posts will explain, they will probably not help your pocketbook.
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A “credit card score” is a letter grade that reflects whether your credit card habits are helping you build credit or causing you to have bad credit: An “A” credit card score is excellent; an “F” indicates that you likely have bad credit. The lower your credit card score, the more likely you have bad credit and need to make immediate changes to your credit card behavior.
Susan – I don’t know of a rewards credit card that has a lower fee than $25. Remember, opening a debit card will not help your credit score or your credit card score, only regular credit cards will do that. I recommend you review Step 2 of “7 Steps to 720″ or listen to our free teleseminar, you can register HERE.
Phil
Please comment on the wisdom of opening a debit or credit card against your bank account where the cards promises REWARDS or POINTS that can be cashed in for gift cards from the bank, VISA or MASTERCARD. I have been seeking a business rewards cards for a small non-profit with a debit account. If I could find the right situation, the gift cards could finance some of the office and training expenses for the classes offered by the non profit. However, in studying available plans, it seems easy to get sucked into paying the $25 annual fee for the rewards card and then not accumulating sufficient points on the monthly purchases to benefit.
Are there any rewards programs out there that might help a non profit grow to meet community training needs?