Will Chasing Credit Card Rewards Hurt My Credit Score?

Summer is still eight months away, but I’m already looking for ways to save money on next summer’s vacation. One method is to chase credit card rewards and hoard them like a squirrel gathering nuts for winter.

Flying to Europe for the summer for free off credit card reward points sounds almost too good to be true.

Signing up for credit cards mainly for the bonus points that come with them is a money-saving method that has intrigued me for years. I haven’t done it, however, because I don’t want to spend the effort keeping track of six or so credit cards. My main concern is much more dire: Will it hurt my credit score?

I’ve written about credit cards and credit card rewards for a few websites, and this is a topic I’ve touched on for a few of them after talking to credit experts and people who make collecting credit card bonus points a hobby. The consensus was that it doesn’t, with a few caveats.

Instead of relying on credit card points experts who keep a spreadsheet of their cards, I found Matt Schulz, a senior industry analyst for CreditCards.com, to talk to about chasing credit card rewards.

Chasing credit card rewards to Europe

I’m in no position to recommend specific credit cards for sign-up bonus points, but there are two that have caught my eye because they’re for airlines I either enjoy flying (Hawaiian Airlines) or use often because it has cheap fares (Southwest Airlines).

Hawaiian offers 35,000 bonus miles with its credit card after spending $1,000 in the first three months. It also offers a one-time 50 percent discount on a roundtrip ticket for a companion who goes to Hawaii with you, provided you buy a ticket with money and not reward points.

The bonus miles would almost pay for one round-trip flight. My wife’s flight would be half off if bought with a full-fare ticket for our daughter. Our three round-trip flights would end up being half off with the bonus and discounts, making the deal seem good enough to warrant getting the card.

Chase offers a Southwest Airlines Visa card with 40,000 bonus points after spending $1,000 in three months. Business owners can earn 50,000 points by spending $2,000 in the first three months.

My wife and I could fly across the country and back on Southwest for less than 50,000 points, giving us another vacation option with our credit card rewards.

But how do I get to Europe? American Airlines has a rewards card with a 50,000-point sign-up bonus after spending $3,000 in three months. According to the airline’s reward chart, it takes 30,000 points to fly one-way to Europe.

After spending some cash on the AA card, we’d have enough points for one free round-trip ticket to Europe.

My sign-up bonus choices come down to:

• Two free roundtrip flights across the United States.
• One and a half free roundtrip flights from California to Hawaii.
• One roundtrip flight to Europe after spending a few thousand dollars extra on the credit card.

Managing three or more credit cards

Each card carries a fee of about $95 per year, though it can be waived during the first year. I deplore paying annual fees to get credit card rewards, but I think it’s a worthwhile expense for the bonus points.

I’ve always thought that if I ever do chase credit card rewards points, I’d get rid of the credit cards before the one-year anniversary so I wouldn’t have to pay the annual fee. But that may be difficult to do if I’m chasing three vacations — Hawaii, New York and Europe — and won’t likely take them all in the same year.

However that works, I also need to be aware of spending only what we can afford to pay back in full each month when the credit card bills arrive. Along with annual fees on credit cards, I also don’t like paying interest or late fees on credit cards.

Chasing rewards points for the three cards listed above at the same time requires spending $6,000 in three months. That’s $2,000 per month, which we should be able to pay back and can use to pay our regular expenses.

How many cards is too much?

The first question I had for Schulz when we sat down for an interview was how many cards I could apply for without hurting my credit score? I have an excellent credit score and I’ve worked a long time to get it there, and I don’t want to hurt it by opening and closing them too quickly just so I can get a free (or partially free) vacation.

Schulz recommended the 5/24 rule. Applying for five credit cards within 24 months shouldn’t hurt a credit score, he said. Applying for that many cards at the same time is a red flag to creditors and could be a sign that you’re in financial trouble and trying to cover it with credit cards.

“As long as you pay your bills on time and keep your balance low, it’s not going to hurt your credit,” Schulz says.

With that advice in mind, applying for three credit cards a few months apart from each other shouldn’t hurt my credit score. And paying each balance off in full each month and not being late with any payments will help keep my credit in top shape while helping me earn credit card rewards.

When to close cards?

If opening three credit cards at the same time within 24 months just for the bonus rewards won’t hurt my credit score, then my next question is: Will closing the accounts hurt my credit?

Length of credit history accounts for 15 percent of a credit score, according to FICO, one of the major credit agencies. Along with the oldest, newest and average account age, a credit report also looks at how long it has been since you used certain accounts.

After getting new credit cards for the sign-up bonuses, Schulz recommends keeping your oldest credit card open as a way to improve your credit score. But if you’re paying an annual fee and aren’t using the card, then it’s worth getting rid of.

While having too many credit cards open can make you look like a credit risk, closing an unused account a year or so later won’t affect your credit score as much as you might think.  The information from a closed account stays on your credit report for 10 years, Schulz says. So if you didn’t use that card wisely, it could hurt you for 10 years.

When to jump on credit card rewards offer?

Credit card bonus offers come and go, and you’ll likely see more of them in your mailbox if you’ve recently applied for a credit card. The offers can be enticing, and the best ones may not be available for long.

A few years ago Hawaiian Airlines was giving 75,000 bonus points — or more than double what it normally offers new customers — to new accounts spending $5,000 in six months. I was going to apply for the card so I could get the bonus points, but I waited about two months before deciding to apply. I was too late and the offer expired.

What held me up? The 50 percent off companion fare had to be used within 13 months of opening the card, and I wanted to wait two months to start that clock because I didn’t think we’d take a trip to Hawaii that soon.

My delay cost us about two free round-trip flights to Hawaii. Waah.