Dear Penny: Will I Hurt My Credit by Opening New Cards for Sign-up Bonuses?

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Dear Penny,

I want to take advantage of credit card sign-up bonus offers. I know I can pay the cards off on time. I’m just worried about my credit score. Will it be affected in the long term if I pay them off on time? Will there just be a temporary decline in my score due to the hard inquiries from opening new lines of credit?

Thanks in advance.

-S.

Dear S.,

I’m glad you’re asking about this, but I’m concerned about your motives.

Are you working on building your credit history? Do you want to increase the amount of credit available to you in order to boost your score? These are acceptable reasons to apply for a new card. If you do take this route, your score won’t take a long-term negative hit from opening a new card.

The length of your credit history only constitutes 15% of your credit score, and new credit makes up 10% of your score. How much of your available credit you use and whether you pay on time make up a combined 65% of your score.

Once you start using your new card (and paying it off each month, ahem), your score will settle, and you may even see it increase. If you’re a responsible credit card user who opens new cards only occasionally, you don’t need to worry about your score. Just keep an eye on your credit report for any anomalies, and be sure to make those on-time payments.

I am curious about these credit card promotions you’re considering. What are they offering? A zero-interest introductory period? Miles or points? A pony? OK, probably not a pony.

These offers can be tricky. Sure, you might be able to earn a bonus reward, but what will you have to do to get to that spending requirement?

A report from the Federal Reserve Bank of Chicago found that upon enrolling in a rewards program, cardholder spending increased and credit card payments decreased. Over the course of nine months, both people in debt and debt-free people who did not regularly use their cards before ended up with debt. The average cash-back reward was just $25.

It’s hard to resist the urge to gamify your experience with credit cards and work toward earning rewards. But don’t let sign-up bonuses get in the way of your long-term goals to build your credit history and your overall financial health.

Wondering how a big financial decision could impact you later? Write to Dear Penny at https://www.thepennyhoarder.com/dear-penny/

Lisa Rowan is a personal finance expert and senior writer at The Penny Hoarder, and the voice behind Dear Penny. For more practical money tips, visit www.thepennyhoarder.com.

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