My Personal Finance Journey

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Cash Out Your Credit Score

Contributed by mm | June 1, 2005 11:56 AM PST

Congratulations, you have a fabulous credit score, and you can certainly benefit from it the next time you refinance or apply for a car loan. But how vigorously you will defend your high score?

I have been referring some amazing credit card offers to my colleagues, but more often than not, their reply was "yes, they are good, but a credit card application will hurt my credit score, so I'll not try."

Yes, they are right. A credit card application will hurt your score a bit, because recent credit inquiries are factored in the score calculation, but is this the right excuse to pass the next deal that will make you a few hundred dollars better off?

I am a firm believer that when it comes to personal finance, everything has a price. In the past, I had been cheap enough to apply a card for $25 gift certificate. Nowadays, my threshold is $100 -- below that, it might not be worth my time (and credit score). Last week, I took another 12-month 0% APR balance transfer offer from Discover Card for about $9,800. The transaction fee is $29, so I figured out I can count on at least $300, if not more, from interest income before I have to pay it off. I consider it a nice price to sell a few credit score points.

Think about it. A credit inquiry only hurts your score temporarily, and in the long run, because you have higher total credit line, your credit utilization will decline, which will actually help your credit score down the road. (Credit utilization is part of the credit score formula, too.) Plus, it probably does not make much difference as long as you keep your score above 700.

To draw an analogy, your credit score is like the gas level of your car. You can keep it high if you don't drive, but if you want to make meaningful use of your car, you have to tolerate a less-than-perfect in your gas level.

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This Post Has Received 8 Comments. Share Your Opinions Too.

Dan Commented on June 1, 2005

If you only have a few cards, you'll also take a hit on the average length of open lines. That can have a bigger impact than a single inquiry.

Nathan Commented on June 2, 2005

In the grander scheme of things, singing up for multiple cards does help your credit score more than it hurts it, but it also leaves you more vulnerable to identity theft.

Jose Anes Commented on June 2, 2005

Defering debt at no interest is almost always a good idea.

My wife is good at finding 2.9% for the life of the loan type of cards. Right now about 70% of her car account is there, paying a few bucks a month :)

Jerry Kindall Commented on June 2, 2005

I had some problems with my credit a few years back (lots of personal debt, all paid off now) and I've recently, finally, started getting offers for better ones. It started with a platinum card from Bank of America which had a 0% intro rate (bought my new computer on that and didn't have to pay interest for six months). After I got that, I started getting offers. I didn't qualify for some of them (got rejected after sending the application back) but I kept trying and eventually got a State Farm Bank platinum rewards card, and now I earn 1% on everything I buy. (It's in "State Farm dollars" which means you have to apply it to a State Farm product like insurance, but it just so happens I have State Farm insurance, so it's cash as far as I'm concerned. You could also open a checking account with them and deposit it there -- their checking accounts are free, and they rebate up to 5 ATM fees a month.)

So yeah, keep applying for the good ones; I took a bit of a ding on my credit score trying to get a rewards card, but finally did get one and will probably make at least $100 off it in the first year. I'm not looking to buy a house or a car anytime soon, so I can certainly take the ding in the short term for that.

jim Commented on June 2, 2005

I think after you have purchased a home, the importance of your credit score drops considerably. I don't see adding a few credit cards really having enough of an impact to give up a few hundred bucks for signing up.

utkarsh Commented on August 21, 2005

well most of the financial advisors advise not to have more than 2 major credit cards so why do you say it otherwise. Also about the transaction fee you can ask them to waive it off one time giving you completely 0% on your balance, thus saving you more than 300

mm Commented on August 21, 2005

if you are not personal finance conscious, one cad may be already too much. Additional card means additional time to maintain or hefty fees will apply, so if you are not up to it, you should stay with two cards. Otherwise, what's the harm? It usually makes sense to ask these advisors why, instead of following blind suggestions, and especially in personal finance world, hardly any advice works for 100% of the population.

diane from pa Commented on August 23, 2005

This credit card thing reminds me of the long distance telephone offers a few years back. We made over $500 in just over 2 years changing back and forth. I never could figure out why they kept sending the offers when I would just switch in a few months.
Anyway thanks for all the info, I am now into accepting money from the card companies.

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