Travel hacking can affect your credit score in a couple of ways:

• Applying for multiple credit cards in a short period of time will result in a hard inquiry per credit card application and can affect your score by up to 5 points per hard inquiry. 
• Signing up for multiple credit cards can lower the age of your credit history, which makes up 15% of how your FICO credit score is calculated.  
• Canceling credit cards after cashing in on the sign-on bonus can change your Credit Utilization Ratio (CUR), which can affect your score for a period. 

As a necessary disclaimer, the contents of this post and petesnaps.com (website) are strictly opinion and information based. I am not a financial advisor. All discussions are based on my opinion alone. The links and external websites are presented as resources to forward the opinion based discussions, as well as to provide citations and further reading. There are risks involved in making investments and/or financial decisions. None of the information presented in this post or on this website is intended as financial advice, nor should it be used as the basis of any financial recommendation or have regard to the financial situation or needs of any specific person, that includes you, lovely reader, as a visitor to this website. 

-Pete Snaps

Applying for Multiple Credit Cards

Applying for multiple credit cards in a short period of time will result in multiple hard credit inquiries on your credit report. 

Additionally, applying for increased credit in a short period can be taken as a sign of higher risk, according to FICO. 

This can affect your score by up to 5 points per hard inquiry. The actual amount depends on your personal credit history and emphasizes payment history (35%) and credit utilization (30%). 

Meaning, that while signing up for multiple new lines of credit in a short period will ding your credit a bit due to the hard inquiries, it will only be a couple of points and doesn’t override a good payment history of paying your credit card bills on time or paying off the amount owed each month. 

This is similar to credit utilization. 

If you’re in the habit of paying off your credit card bill every month, your utilization will be 0%. 

Most credit score gurus recommend keeping utilization below 30%, but the other option is to never use credit and to simply pay off the credit card bill each month. This way, you never pay interest while getting benefits from the travel card. 

As a precautionary note, the fact that multiple credit card applications can ding your credit score a bit is a good reason to wait at least 90 days between credit card applications, especially if you need to maintain the highest credit score possible. 

While FICO logs your ‘hard credit’ inquiries for 2 years, FICO will only factor in credit pulls made in the last 12 months when calculating your credit score.  

It’s important to know these hard inquiries can affect your credit score by a few points, but the reality is, that the number of credit inquiries only accounts for 10% of what makes up your total credit score. 

So the negative impact is really negligible in the grand scheme of things if you currently have good or excellent credit. 

However, it is something to consider if you’re trying to buy a home in the near future and need the best credit score possible to lock in the best interest rate. 

Age of Credit History

Applying for new credit cards also impacts the average age of your credit history. 

As an example, let’s say your oldest credit card is 9 years old, the next one is 5 years old, and the last one is 3 years old. The average age of your credit history would be around 5.7 years old. 

If you signed up for another credit card, the age of your credit history would drop to 4.25.

The average age of your credit cards plays an important role in your credit history and makes up 15% of how your FICO credit score is calculated. This is why canceling a newer credit card won’t affect your credit score as much as canceling your oldest credit card. 

The good news is that paying your credit cards off in full each month and allowing time to pass builds a strong history and good credit. 

The actual credit score points that are affected by the overall age of a person’s credit history will depend on the individual’s overall credit score standing. 

If someone had a good or excellent credit score, credit history fluctuation would be a lot less impactful. On the other hand, if a person’s utilization and payment history aren’t so good, a fluctuation in credit history will have a different impact. 

Just keep in mind, that the impact only accounts for 15% of the overall FICO credit score calculation. 

So it is safe to say that there is some impact, but it is not as weighted as other factors.

How FICO Calculates Credit Score 

So, how is credit score calculated? 

The FICO calculation is one of those things that is not completely transparent, but we do know the factors and how they are weighted. 

Your FICO credit score involves 5 main things:

• Payment history (35%)
• Credit utilization (30%)
• Length of credit history (15%)
• Types of credit in use (10%)
• New credit (10%)

The length of credit history makes up 15%. 

This is a good reason to keep your oldest credit cards active by using them a couple of times a year instead of canceling them. The older cards will help balance out the new credit cards that are opened.

Canceling Credit Cards 

Canceling credit cards after cashing in on the sign-on bonus is the other main way travel hacking can affect credit score.  

This is due to something called the Credit Utilization Ratio (CUR).

Utilization makes up 30% of how a credit score is calculated. 

CUR is the ratio between your credit limit amount across all lines of credit and your charges at any given month. 

Put simply, it’s how close you are to maxing out your credit cards. 

Paying off your bill every month is the best way to keep this ratio in good standing. 

To determine the utilization rate, let’s say, you have a $16,000 total credit limit across all cards and you spend $2,000 for a given pay period. Your utilization would be 12.5% (2,000/16,000).  

Canceling a card with an $8,000 credit limit will make your utilization double (2,000/8,000) is 25% utilization. 

Canceling a card makes your utilization appear higher than it is artificially for a time. Not because your spending habits changed, but because your overall available credit decreased. 

You can mitigate utilization fluctuations by paying off your credit card before the due date, especially if you make a larger purchase. 

This isn’t necessary to worry about unless you are in a position where you need the highest possible credit score (like in the process of buying a house). Otherwise, it is my understanding that the ratio will be updated as early as a month and as long as six months after you pay off your balance in full every month like normal.

Since I have yet to cancel a travel credit card I signed up solely for the travel perks, I can’t speak to how many points this will affect your credit score exactly, but it is worth noting that your credit score will be affected for a time. Just be aware of that temporary fluctuation.  

Credit scores rebound within 3-6 months after canceling a credit card, according to this WalletHub article.

It usually takes 30 – 45 days for your new ratio to be reported by the lender to the TransUnion.

Keeping a 0-10% utilization ratio is a good way to maintain a credit score. 

While it is suggested to keep the ratio below 30%, paying off your balance in full every month on or before the due date is the best way to keep this ratio from being inflated. 

Managing Credit Cards is Key to Managing Credit Score

So, we’ve discussed the three main ways travel hacking can impact your credit score. 

The credit dings are overall pretty minimal and shouldn’t stop you from beginning your travel hacking journey. As we discussed, there are cases when it may be best to abstain from diving into travel hacking, however. 

The main ones being:

• Buying a house. Every few credit points affect the interest rate that you’ll be linked to for 30 years. Buying a home is a time to press the pause button on signing up for credit cards. The money you save in travel in that period will never be more than what you will save by getting the best possible interest rate on a 30-year mortgage. 
• Not having the ability to pay off credit card swipes in full each month. This includes meeting the initial minimum spends and regular spending moving forward. Not only will this cost you interest, but it will make your CUR rate increase and affect your credit score. 

Signing up for a couple of new cards a year and being responsible with them is a good place to start. Getting into credit card churning is a game for someone with an excellent credit score and attention to detail. 

People who sign up for 5+ credit cards a year just to get the sign-on bonus and cancel the card have a credit score that can handle it and a lifestyle that can account for meeting all those minimum spend amounts without paying interest. 

The ability to manage credit cards is the main thing to consider when looking at travel hacking. The same goes for having a basic understanding of the ins and outs and pros and cons. 

Knowing how travel hacking can affect credit score and being intentional and conscious about that reality is a step towards travel hacking success.