Playing the Credit Card Bonus Game? Think Twice!
Were all about earning a lil side money here at Website Beam but sometimes you need to weigh the pros and cons of a deal before before committing.
Several credit cards now offer big bonuses to attract people who have relatively good credit ratings. But with the big rewards come high risks. If you are planning to get involved in the bonus game and start churning credit cards, you need to take a look at following details to determine if the rewards involved match the risks you will encounter.
Lower Credit Score
Churning will definitely lower your credit score. A continuous stream of new and closed credit card accounts on your credit report will knock off points from your credit rating. If your current score is not in the “very good” category (750+), it is better to stay from the bonus game.
Your Can Easily Lose Money
Playing the bonus game does not make much sense if you can’t pay off your credit balances on time every month. This is because the whole essence of the bonuses is to help you save money. So if you are going to end up defaulting and incurring more credit card charges, churning is simply not for you. Apart from this, reward cards could cost you more in the long term. For instance, these bonus cards charge higher interest rates. You could also end up paying an annual fee of up to $100 on some cards.
Poor Credit History
If you plan to do anything that will require an assessment of your credit report in the near future, please stay away from credit card churning. It will hurt your credit rating in two major categories: new accounts and length of credit history. For instance, 10% of your overall credit score is derived from the number of new credit accounts you have opened recently. That is why personal finance experts recommend that you leave a 30-day interval between one account opening and another. This 30-day window is meant to reduce the impact on your credit score.
Even if you are a smart churner and you apply for several credit cards in one day, and then wait for months before applying for new ones, your credit score could still be hit. Why? You could easily forget to make a payment due to the large number of cards you are juggling and this could result in a significant loss of money. When it is time to close the cards, your credit score could also be reduced. In several cases, it may be better to pay off the balance and stop using the card. But annual fees could easily get in the way.
Mortgage Lenders Will Charge You More
Another hazard of playing the bonus card game is the loss of favor you experience when you need to apply for a mortgage loan. Virtually all mortgage lenders hate seeing several opened and closed accounts on your credit report. So, if you will need to get a home loan very soon, don’t churn cards.
Higher Stress Levels
Regardless of your personality, churning credit cards will put a significant amount of pressure on you. This could easily increase your stress levels. Remember that when you open all these new credit card accounts, you will need to monitor and meet up with specific spending requirements. You will also need to keep your mind on due dates, fee schedules and organize all your payments to ensure that you can gain all the bonuses without paying extra charges. If you already have a very busy work schedule and you are not a naturally organized person, you could end up putting yourself under undue stress.
Although a few people can reap the big bonuses and still strive to keep a good credit score, you need to be fully aware of rules, risks and your spending habits before playing the bonus game.