Credit Cards

Credit Cards: Dispelling the Myths

There are many misconceptions about Credit Cards out there and before getting involved in churning them, it is important to understand the truth. Check out the list below for 5 myths and preconceptions that I hear all the time about credit cards.

1) Getting multiple credit cards will hurt my credit score.

Your score will definitely take a little ding from applying for a new credit card. This drop is due to a new hard pull on your account. A new HP can take around 10 points off of your score but these are temporary reductions and it typically takes about 3 months to recover those points. Aside from the loss from HPs another negative for opening a new credit card is that your AAOA (average age of accounts) will also drop. Your average age of accounts is exactly what it sounds like. The average age of all of your accounts in months is averaged. Here's an example.

Let's say I have the following credit profile:

  1. Student loans that were assigned 5 years ago
  2. A credit card opened 3 years ago
  3. A credit card opened 1 year ago

In this situation my average age of accounts would be as follows:

5(12)+3(12)+1(12)=108 months / 3 accounts= 36 months = 3 years

If I were to apply for a new credit card that would reduce the average to the following:

5(12)+3(12)+1(12)+0=108 months / 4 accounts= 27 months = 2 years and 3 months

As you can see about 9 months was lost due to the additional card. This is not extremely significant especially if you have multiple cards or accounts that have been opened for a significant amount of time. Each new account will continue to age along with all existing accounts and your AAOA will rebound relatively quickly. This is only a large detriment if you have a thin credit profile.


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