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Retail Credit Cards: Is Frequently Opening and Closing Them a Problem?

Nov. 4, 2014
Credit Cards, Rewards Credit Cards
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It seems like every major retailer these days is offering its own credit card. In an effort to encourage shoppers to apply, many merchants offer a steep discount on your first purchase with the plastic.

So is it a problem to frequently open new retail credit cards for the markdown, then close them right away? As it turns out, yes, this can have serious credit score consequences — here’s why:

You’re dinging your score with every application

Every time you apply for a new credit card or loan, a hard inquiry to your credit history is performed. This mark will show up on your credit report and stick around for about two years.

Although a hard inquiry likely won’t affect your credit score for the full two years it’s on your report, it will cause your score to drop a few points in the short run. That might not sound like a big deal, but if you’re opening and closing new retail credit card accounts every few weeks, you could be shaving a lot of points off of your score over time. Since a low credit score will make it harder and more expensive for you to get credit in the future, those one-time discounts are probably starting to seem like less of a bargain.

>>More: NerdWallet’s Best Store Credit Cards

You’re lowering your average age of accounts

Fifteen percent of your FICO credit score is determined by the length of your credit history. Although the way this is calculated is somewhat complex, one factor that influences it is the average age of your open credit accounts. Every time you open a new credit card, you’re lowering this average.

For folks who have decades of solid credit history under their belts, this might not be a big deal. But those with a shorter record might really feel a pinch if they open new cards too frequently.

You could be messing up your credit utilization ratio

First, some background: Your credit utilization ratio is the amount of credit you have in use on your cards compared to their overall credit limits. It heavily influences the 30% of your FICO credit score determined by amounts owed. If you use more than 30% of your available credit on any of your cards at any point during the month, you should expect your score to drop.

This accounts for yet another way that retail credit cards could be hazardous to your credit. Since most have very low limits, it’s easy to exceed that 30% threshold with just one big swipe. And if you frequently pay off and close up accounts but continue to carry balances on other cards, you could be causing your overall credit utilization ratio to spike periodically. In both cases, opening and closing retail credit cards too frequently is definitely a risky move.

You’re setting yourself up to miss a payment

If all the other credit-related issues discussed above aren’t enough to make you think twice about habitually opening and closing retail cards, remember that keeping track of several accounts at once is tough. By churning through a bunch of cards, you’re setting yourself up to miss a payment on one of them.

This could result in a late fee, or worse, a delinquency on your credit report. Since your history with making on-time payments determines 35% of your FICO score, this could do serious damage. What’s worse, it will take seven years for the incident to fall off of your report.


Retail therapy image via Shutterstock