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Does Pursuing Credit Card Rewards Hurt Your Credit Score?

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I have a confession to make.  I’m shameless in my pursuit of credit card rewards.  I know what you’re thinking.  I’m selfish.  I’m careless.  I’m out for myself.

If you happen to be thinking any of those things, I want you to know that you’re totally correct.  It’s true.

I have zero love for the big banks who dole out ridiculous sign-up offers and incentives.  After all, would Chase or Citibank piss on me if I was on fire?  Would Bank of America help me out if I were in trouble?  Would American Express show mercy on me if I was having trouble paying my bills?  Doubtful.  Also, I think it’s important to keep in mind that they don’t offer rewards out of the kindness of their hearts.  They’re actually trying to trick us.  They want to lure us in, get us to spend more than we planned, and pay interest to them for the rest of eternity.

Therefore, I don’t feel bad at all when I take advantage of their generous offers without paying annual fees or a cent of interest.  Not one bit.

Does Pursuing Credit Cards Hurt Your Credit?

Just the other night, I made a nifty spreadsheet detailing all of the credit cards we’re currently working on.  And well, it was a little shocking.  Between the two of us, we have over 20 open credit card accounts.  Some have been used already and we’re currently working on others.  With that many cards open, people often ask me if we’ve done irreparable damage to our credit rating.  They ask if we had trouble getting our most recent mortgage or if we had to pay a higher interest rate.  Basically, they freak.  So, let’s look at the facts:

  • Between the two of us, we’ve opened 8 different credit card accounts each within the past twelve months.
  • We currently have over $145,000 in available credit on credit cards.  Yes, I’m serious.
  • We pay all of our credit card balances in full several times a month.
  • When we applied for the mortgage on our new home, Greg’s credit score was 758 and mine was 745.

So, in a way, pursuing credit card rewards has affected our credit score in a negative way.  When we bought our first home in 2006, our mortgage broker was uber-impressed that my credit score was 830.  But, the last time I checked, there were no rewards handed out for having a credit score in the 800’s.  The high 700’s are nice too, but the fact is, you don’t get any special perks for having a credit score over 720.  The only thing I worry about is keeping our scores over 720 so that we can qualify for all of the best offers out there.  Other than that, I couldn’t care less about my credit score.  In fact, we closed on our new house Thursday and I went straight home and signed both Greg and I up for a Southwest Rapid Rewards Visa card.  And I’m glad I waited since they recently brought back their 50,000 point sign-up bonus!

Guidelines for Pursuing Credit Card Rewards

When it comes to pursuing credit card rewards, you have to protect yourself.  Here are some basic guidelines that I follow:

  • I pay off my credit card every few weeks.  Technically, you only have to pay the balance in full each month to avoid paying interest.  However, I use a zero-sum budget and I like my account to be empty at the end of the month.  It’s just how I roll.
  • I only pursue offers that I can easily attain.  If the spending requirement on a particular card is too high, I don’t sign up.  Sometimes it makes me sad but I don’t like to stretch myself.  Fortunately, since we had a ton of home renovations coming up, I was able to sign up for a few choice cards ahead of time and take advantage of the situation.
  • I keep track of everything.  If you’re like me, you mostly pursue cards for sign-up bonuses instead of long-term rewards.  If that’s your strategy, you need to keep a detailed record of when you opened and closed your accounts as well as when you hit the spending requirement.  Forgetting to cancel a card before the annual fee kicks in could result in you having to pay it.  Who wants to do that?

Related:

What about you?  Do you pursue card rewards?  If so, are you worried that it will impact your credit?

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71 Comments

  1. Still not something I’ve gotten into. I can definitely see the value, and there’s enough evidence out there that it doesn’t ruin your credit, it’s honestly just a matter of one more thing to keep track of right now. Kind of a lazy answer to be honest with you, but with everything else going on it just hasn’t jumped to the top of the list.

    1. I’m with you Matt, but I’m starting to come around. My coworker got one of the Southwest cards and received his 2 free flights in just a few weeks, and now that my wife and I might be going on a vacation this spring I’m thinking about doing the same.

      I also recently figured out how to track credit cards in a zero-sum budget (using YNAB) much more easily, so I’m starting to stick my toe in that water just a tad…

  2. Wow! Over 20 cards? Are you sure you guys don’t want to dip your toes in the water first? 🙂

    I’m actually surprised that your scores are still holding up as good as they are. You should continue this process for a while and document it as a case study. I’m sure this would serve as great evidence to those who doubt whether or not its good to have that many cards open.

    1. Ha! Well, we’ve been doing it since the very beginning of 2012. We actually had a lot more cards in 2012 than we did in 2013 as well.

  3. Wow Holly I’m impressed! We just opened a Barclaycard Arrival World MC and it has an annual fee after one year. We were kind of thinking we’d see how much benefit we get out of it within this first year and then see if we were getting enough out of it to justify paying the annual fee or not.

  4. My wife and I partake in “light” credit card rewards mostly because our spending is so low that it makes it difficult to meet all the spending requirements. I think when one gets in the mode of paying down debt super aggressively credit scores tend to matter less, for example paying off a mortgage ten years earlier significantly mitigates the impact of a slightly higher rate.

    1. Yeah, as long as my score is 720 I really don’t care. And now that we bought our new home, I care even less.

  5. Thanks for the honest information. I have been so interested but I just don’t know if we can spend enough to really get enough rewards to get a free vacation.

  6. Since we’re paying off our mortgage early we aren’t too worried about our credit rating being absolutely perfect. We paid for our recent trip to Japan with credit card points. So the rewards are definitely worth the risk.

    1. Sweet! Yeah, if you don’t plan on borrowing money then there is no reason to stress about your credit score.

  7. I was actually just talking about this on Saturday when I met with my blog designer. I think it’s tough to know how many you can/should open before it starts dropping your credit score. I think it also depends on purchases you plan on making and what your current credit score is. Like you said, you had a very high score so even if it drops 100 points it really doesn’t hurt you, and you can always put the brakes on if you wanted to.

    1. Yeah, I monitor both of our scores on credit karma. Last year mine teetered near 720 so I waited a while to switch cards. After a few months it was back up to 740-750 and I felt comfortable again.

  8. By paying your balance in full every few weeks the balance reported to the bureaus is much smaller than if you paid only once a month. The banks report what is owed when the billing cycle closes. Balance amounts are usually highest at the end of the billing cycle and lowest after the payment is posted. Lower balances translates into lower utilization ratios, which means higher scores – just by paying more frequently. Well done!

    1. Yay! Yeah, I suppose that helps even though that’s not the reason I do it.
      I just like to empty my bank account as the month progresses.

  9. Credit card rewards was one of the things I would do to keep our financial house of cards from falling down (in a different way than you outline above). The outcome was 109K in credit card debt so they have left a severely bad taste in my mouth. For me…I’d better stay away. 🙂

    1. Yikes!

      Well, I don’t blame you. It’s different for us because we are debt-free and just put our groceries and gas on them!

  10. I was actually having this conversation with a family member over the weekend. The last I checked both my wife and I were in the 750-770 range, and since we’re both over that 720 mark I really don’t care much. If they’re going to give the money out and I don’t really have to do anything different, then why not. We opened 8, I think cards, last year and have sights on more this year. You’ll love the Southwest card, I got that myself…two free tickets ain’t too bad. 🙂

  11. Awesome point – there are no prizes for having a credit score over 720, whereas there are lots of credit card rewards to be had. We’ve started doing this to make our travel budget stretch farther. We were concerned about the impact on credit score, too, but we’re in the same boat you guys were. Our credit scores were both in the 790s, so we could very easily afford taking a hit there. Plus, we don’t plan to make any major purchases (car, house) for years, so there is pretty much zero benefit to us in trying to keep or improve our scores beyond what they are now. Would much rather save money on travel than worry about a 5 to 10 point fluctuation in my credit score.

    1. Yep! Plus you can monitor things on Credit Karma and make sure that it doesn’t drop too much!

  12. I haven’t done this but have been considering it for this year. I like your explanation here regarding credit scores. I think we should be good to take advantage of it this year.

  13. I was talking to a travel blogger at Fincon and our conversation was about how surprised he was that more PF people didn’t earn credit card rewards because it’s basically thousands of dollars in free travel or cash back. I think the whole myth about it being “bad” for your credit is what holds people back. I would advise people to build a bit of credit history first. After that, it really doesn’t affect your score that much. We started right after we paid off our credit cards for good in Nov 2012, and have opened probably as many cards as you and the lowest my score ever got was around 760, AND we got approved for a mortgage when we were thinking about buying another rental without a second thought from the lender. If you pay your bills and keep track of things, it’s a great way to see the world. I am already aiming for business class tickets for the three of us to go to Europe in 2015. I priced them out at $21,000! With CC rewards, it will be around $500. There is no way we could do this paying with cash.

    1. Sweet Kim! We are going to Europe in the fall of this year and the total cost will be about 350 each plus food and entertainment.

  14. Thanks for the info Holly. While I want to get into rewards, I have to make sure I keep myself honest with my credit cards. I do have a high credit score, well over 800, so I have room to work. We are planning on getting a mortgage in a few months, so I might wait, so I can be assured that I get the best interest rate on my mortgage possible. Then I might give it a try.

    1. I would wait until your mortgage is done with then go for it!

  15. This is hilarious.
    And here I was thinking that having 3-4 was a little crazy since I also pay them off in full and easily could just use a single good rewards card (my Fidelity pays 2% on All purchases) and call it a day.
    You’ve given me new found inspiration 😉

    1. Not crazy at all. I could literally buy a house on credit cards.

  16. I’m just a minor rewards earner, but I’m ramping up in 2014. Brad at Richmond Savers is helping me out to find good travel hacks. And yeah, I’m definitely a little worried about the impact it’ll have on my credit. But I figure if I manage the process, I doubt that my scores will dip enough to have any real impact on buying a home, which is the only real risk, I think.

    1. Yeah, I would just keep an eye on it. Sign up for a free account at credit karma if you’re worried. They’ll email you when your score drops.

  17. Didn’t know about this until in started reading about it on various blogs. I just got the chase sapphire travel card and when I’m done with that go for the Barclay. I sign up through the affiliate link of the first blogger that I read the features and benefits of a specific card. My goal is for 180000 miles this year.

  18. This is nice to hear! Since we keep throwing around the idea of buying our next home within the next year, we have been debating whether or not we should do this. I figure a few won’t kill us.

  19. It makes sense to only get the card for the great sign up bonus and not really care about long-term spending with it. I’ve always looked at it from the other side – long-term vs sign up. I might have to change my thinking.

    1. Yeah! I always cancel before the annual fee hits. No way am I paying that.

  20. I’ve opened a few, but I always thought closing them could hurt your credit, so that’s why I haven’t done too many because I didn’t want to pay all those annual fees. So it doesn’t hurt your credit to close? That could open up a world of possibilities.

    1. Yeah, it does a little bit but not that much. Definitely close cards before the annual fee hits!

  21. I’ve read that doing this doesn’t really hurt your credit score too much but we might be taking on a mortgage plus have to pass coop board interviews (unfortunately they often can be very strict…even if you can get a mortgage). So to be cautious, we won’t be participating in rewards for now. I regret not doing more when I had the opportunity. Btw, can you get the same bonus for cards that you’ve cancelled when you sign up again?

  22. Holly, I am really impressed that you are able to keep up with all of those credit cards! I have been thinking about “playing” more with credit cards, but have been concerned that it will become too much “work.” But I guess if you think of it as a side hustle for extra “income” then it is probably worth the effort.

  23. We’ve only done a couple so far, but no effect on our credit – we track it using two different sites.

    It is still a pain in the ass, though.

    1. Yes, it is! If it wasn’t so lucrative it wouldn’t be worth it.

  24. I love credit card reward programs but I don’t actively participate at this point. I don’t think it’s a bad idea, but as you mentioned, you have to stay on top of everything to make sure you cancel before your annual fee are due, etc. I just don’t have the time to deal with it with right now. 🙂

    1. I hear ya. I probably spend an hour or two per week tracking everything. It can be a pain!

  25. I still haven’t done it. Mostly because it seems like a lot of work and I’m focusing on some other things right now… but I love reading everyone’s stories of free trips and money!

  26. We want to do this, but only after getting 100% out of cc debt to begin with and then establishing some good credit for about 3 or 4 months (not that we are not doing that now…).

  27. Awesome points here. My wife and I are well above 800, but we really don’t use credit for anything. However, that is going to change, as this year I plan on accruing enough points to take a pretty badass European vacation for as close to free as possible (after seeing all of the gnarly things people have been able to do with rewards cards). But, we are going to be getting a new house in a few years, and I just want to make sure I’m able to maintain a high enough score to get the best rates. A lot less of a problem with my financial house in the order it is now.

  28. This isn’t something I do, nor is it even possible at the same rate as it is here in Canada but I do plan on doing this in a few years. I would think as long as you keep your oldest accounts open and up to date the newer ones shouldn’t hurt it too much.

  29. I don’t really see the appeal in this. Maybe its because I know I’m too lazy and wouldn’t close all of the old ones. I find it works better for me to pick one good rewards cards and stick with it.

    1. The appeal is thousands of dollars in free money for minimal effort =)

  30. I admit, the credit rating issue is a serious question for me in pursuing credit card rewards. I’ve done some very minor league work in taking advantage of bonuses, but not nearly to your level.

    Perhaps once I have a mortgage I’ll reconsider. I think the fear of not qualifying for a mortgage is a big fear barrier for me.

    1. I don’t blame you. We just closed on our mortgage and it was a pain in the ass. I would wait until you’re done with it if I were you.

  31. I’ve refi’d and bought a new home in the midst of all my credit card shenanigans. And I’ve gone from 20 something Credit Cards to a small handful.

    1. Sweet Elroy! Yeah, it doesn’t affect your credit as much as people think.

  32. I actually waited forever to even get my first rewards card and I’ve never stopped kicking myself for that. I applied for the first time right before going overseas for grad school because I knew I was about to put like $30,000 on my credit card over the next year (it was easiest way to pay for things – even my tuition and rent – in England), but when I went to apply, we found that I was still listed as an authorized user on one of my mom’s cards and her credit was HORRIBLE and pretty much destroying my credit score. We got me removed from there, but it was such a fuss everything didn’t get sorted until I was back from the school the following year. I’m still so irritated I waited so long. I’m not a huge spender, so I don’t think I’ll ever have a chance to rack up so many points so easily again.

    On the flip side, I’ve been reading more and more about this now and I’m start to reach the point where I wonder if I’m just missing out again.

  33. Is there a way for you to know when it could start to hurt your credit score enough to drop below 720 or do you just monitor your score on a semi-regular basis?

    I’d never really considered doing the credit card rewards, but the more I read posts about it I think I should branch out a bit…

  34. I don’t do this, but I definitely apply for at least one every year or so because they always come along with such great offers. It’s hard for me to turn down what is basically a free trip or $500 just because it might ding my credit. I have great credit already and since I don’t plan on buying anything that requires a loan anytime soon it doesn’t bother me. I might actually apply for more credit cards this year because of it. 🙂

  35. Love it! I’m not a rewards earner…yet. I have to get my wife on board and since I have a little bit of a dicey relationship with credit cards in my past I haven’t brought up the subject. Soon though, very soon.

  36. Interesting post and the comments are interesting as well. It’s a good example of how sometimes we just have our own rules in place in terms of things we won’t do with money…while others are flexible. I think this post makes a compelling case for why it can work if done in limited instances.

  37. “After all, would Chase or Citibank piss on me if I was on fire?” that line totally made my day! I don’t feel bad about taking advantage of the offers the cc companies are offering. They make billions off everyone else, so why not take advantage right back? I’m definitely going to be giving this a try this year.

  38. I haven’t done this, but I have opened quite a few cards and closed down two in place of the ones I have opened. I don’t know whether it’s hurt my credit (different country, different rules?) but you are right, having a SUPER high credit score does nothing that having a high score doesn’t do.

  39. Lisa E. @ Lisa Vs. The Loans says:

    Although credit scores are necessary for big purchases, for the most part they’re over-rated! I don’t mind receiving a ton of rewards in exchange for a lower score. Mid 700s is still pretty good!

  40. Do you have to use the rewards before you close the account? I’m just wondering if you close to avoid the annual fee but haven’t used the rewards yet if they will take them back.

  41. Mr Wizzer says:

    I completed the amex blue sky 400$, the sapphire 400$ and some random 100/150$ deals along with purchase points. AND IM JUST GETTING STARTED!!!!. Working on the southwest 500 now. So my rules are simple. Go for the cash and calculate the payout. IE spend 500 get 100 = 20% off. If theres an up front fee calculate it out. It always has to pay out at least 20%, so life, is 20% less. There are deals out there to get 1k back but once you calculate your getting less than 20% back. At 20% back every 2.4 months of the year you live for free! And if you can’t hit the required spending buy gas/food cards that you will use.

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