Photo: Flickr / Ed Yourdon
We’ve all thought about it: Get an attractive travel rewards card offer in the mail, sign up to get all the introductory perks like a 0% APR and bonus miles, then close the card before the annual fees kick in.Lather, rinse, repeat and suddenly you’re seeing the world, right?
New York Times’ Joe Sharkey says he laps up “the bonuses like the caches of frequent flier miles that come as enticements.”
But even this seasoned travel reporter knows this habit could be putting his credit score at risk.
Let us break it down for you:
Each hard inquiry, or request for your credit report by lenders when you apply for a card, counts against your score and could ding it by up to five points.
This doesn’t take long to recover from, especially if your score’s in the good range, but enough hard inquiries over time could can a message to the credit bureaus that you’re desperate for credit, which in time will help drag down your score.
Closing a credit card can also affect your utilization percentage, or how much of your overall credit lines you’re using among all your cards. By that logic, if you’re carrying a balance on any other cards, this would force you to pay off the other cards quickly in order to maintain a decent utilization percentage.
Finally, closing one of these travel rewards cards after only a few months means you’ll risk “erasing your history,” says Credit.com‘s Emily Davidson. “One element of your credit score is based on the age of your oldest card,” she told the site. “So closing out the oldest card can bump your score into a new range. And the score also looks at the average age of your credit cards.”
To learn more about the dangers of closing a credit card, check out this YM feature.