Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. Business Insider may receive a commission from The Points Guy Affiliate Network, but our reporting and recommendations are always independent and objective.
Lifebrary / Shutterstock.com
Opening new credit cards can help your credit, as long as you're smart about it. The author is not pictured.
- In 2011, author Eric Rosenberg discovered the world of travel hacking, and started opening credit cards to get sign-up or welcome bonuses in the form of points.
- At first, he was a little wary of opening new cards, thinking they might hurt his credit - but they did just the opposite.
- The trick to keeping his credit score high while opening and closing credit cards has been keeping careful track of his cards and making sure he never has unpaid balances.
I learned about the concept of travel hacking from Chris Guillebeau, author of "The Art of Non-Conformity" and many other great resources. This led me to one of his many projects, the Travel Hacking Cartel. I joined in June 2011 and stuck with it for a few months.
But what I learned there started me on a path to the dozen-plus credit cards club.
I would later learn that Chris is part of a wider community of "travel hackers" who look to credit card rewards and skillful bookings to get maximum travel on the minimum budget. That sounded like an incredible opportunity and something I definitely wanted to try.
Read More: The best credit card rewards, bonuses, and benefits of 2019
I was a bit off-put, however, when I first learned that the best way to get lots of points quickly is new credit card sign-up bonuses. Wouldn't getting new credit cards hurt my precious credit score? I learned along the way, yes and no. But in the long-run, opening all of these credit cards drove my score upward!
And along the way, I've earned countless rewards miles and points that have taken me and my family to places like England, France, Holland, Israel, Spain, Portugal, Canada, and all over the United States. While traveling with miles and points isn't free, it lets you go nearly anywhere for pennies on the dollar with good planning.
A system helps me manage all of my cards responsibly
With a bit of hesitation, I signed up for my first card solely with a goal of earning miles. My 100,000-point British Airways Visa Signature Card signup bonus (offer no longer available) was all I needed to get hooked on the travel hacking hobby. That bonus covered a trip to London, Paris, and Amsterdam with plenty of miles, now called British Airways Avios, left over.
Eventually, I added the Chase Sapphire Preferred Card, then another card, then another. All of a sudden, I was on my way to half a dozen cards. At this point, I realized I needed a system.
While there are many ways to do it, I keep all of my non-daily cards together in a safe place and monitor all of my balances, charges, and payments using a combination of tools. Free apps Mint and Clarity Money both work well for this purpose.
As long as you pay off your cards in full each month before the due date, you'll never pay any interest. I put a small subscription charge on a few old accounts each month with automatic payments so I don't have to think about them. For cards I use just with specific airlines or hotels and daily use cards, I pay them manually but check the balances at least weekly in just a few seconds using the apps above.
If a card has an annual fee and I don't see myself getting more value from the card than the cost, I try to downgrade it to a no-fee version. If that isn't possible, I go ahead and close it. For cards with no annual fee or a good recurring value, I want to keep them open as long as possible.
I have to be careful how many cards I open, and when
When you apply for a new credit card, an inquiry shows up on your credit report that dings your score by a few points for up to two years. Opening a new credit account reduces the average age of your accounts, further bringing down your score. New credit, in the short-term, is bad for your credit score. There's no question about it.
Further, if you plan to get a new mortgage or other important loan, lenders may look at a string of new credit accounts as risky behavior. Why would someone open a bunch of credit cards at once if they are not about to go into debt? While you know you plan to pay the cards off in full each month, the lenders can't be certain about the risk.
Read More: The best way to build your credit is the same strategy people use to build wealth
But over time, adding new credit accounts improves your credit mix. More accounts with a perfect on-time payment history further increase your score. As the accounts age, so does your average age of credit, and if you keep your spending steady, your credit utilization rate decreases. In my experience, the temporary effects of opening new credit cards go away in around six months and turn into a positive. But that only works if you keep the balances near zero and always pay on time.
The biggest risk in opening and closing lots of credit cards is making a mistake. If you don't keep close track of your accounts, it's easy to make a late payment or overspend. Doing so can harm your credit score for years, so always be careful.
Read More: Here's exactly what it takes to have an excellent credit score
Also, keep in mind that credit card companies don't really want you to open and close accounts quickly, so space things out and take it one step at a time.
For example, Chase is notorious among credit card travel hackers for its 5/24 rule. This rule states that, in most cases, you can't open a new Chase credit card if you have opened five or more in the last 24 months with any card issuer. If you close an account too quickly, AmEx is known to claw back bonus rewards. But if you play by the rules, you should be in good shape.
I'm always looking at the long-term costs
The real reason I have so many credit cards is to travel as much as possible for the lowest possible cost. But if the cost of having those credit cards becomes more than my travel savings, it isn't worth it. That's why I am always looking at my balances and planning for my next moves.
Read More: This is the only rewards credit card most people will ever need to open
In the worst case, a serious misstep could damage your credit score and prevent you from buying a home with a mortgage. It could also lead to higher interest rates, which could cost tens or hundreds of thousands of dollars over the life of a home loan. Your credit is serious business, so you shouldn't ever forget about its long-term consequences.
The best thing you can do for your credit in most cases is keep your balances low and avoid tinkering. But if fear of damage to your credit is all that's holding you back from an excellent new card, you may be unnecessarily falling victim to a credit score myth.
When you're working to earn credit card rewards, it's important to practice financial discipline, like paying your balances off in full each month, making payments on time, and not spending more than you can afford to pay back. Basically, treat your credit card like a debit card.
Learn more about the British Airways Visa Signature Card from Business Insider's partner The Points Guy »
Learn more about the Chase Sapphire Preferred Card from Business Insider's partner The Points Guy »
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
Business Insider may receive a commission from The Points Guy Affiliate Network, but our reporting and recommendations are always independent and objective.