You’re in the store. The holiday music is rocking, decorations make the store look like a winter wonderland, and you’ve found the first gifts of the season. You are at the checkout and the total cost of your purchases (unpleasantly) surprise you. Then, the cashier asks, “Would you like to sign up for our store credit card? You’ll get 20 percent off this purchase.”
Wow, 20 percent? That could help out a lot. The money you save here could go towards getting more gifts! So you sign up, planning on paying it off next month and then cancelling the card.
This is fine to do once or twice, but as you continue to shop, you’ll notice that more and more stores offer their own credit cards with special offers if you sign up. Applying for all of these credit cards is very dangerous, both to your credit score and your finances.
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Applying for Multiple Credit Cards
Regardless of whether it is Black Friday, Christmas, or February 29th, applying for additional credit cards or trying to take advantage of special card offers follows the same process. Here’s a brief summary of how your credit score and applying for a credit card work together.
You apply at the store, and they send an inquiry to one of the major credit bureaus asking about your creditworthiness. They then get a credit report, which is a history of how you deal with debt and bills, and calculate a score from that. This is called a hard inquiry, which is then added to your credit report, basically indicating that you are asking to get a credit card.
On its own, a single hard inquiry isn’t good or bad, it just is. It tells the credit bureau, and future credit checkers, that you likely requested approval to get a credit card. But, having multiple hard inquiries in order to get several credit cards, is a major red flag.
A person trying to get several credit cards in a short period of time (within a month or two) might be struggling financially and turning to credit cards to pay the bills. That kind of person, in the eyes of lenders, is an unsafe investment to give money to, and their credit score will likely drop–discouraging companies from giving them loans or credit cards.
Having multiple hard inquiries on your credit hurts your credit score, in turn making it harder to get more loans or credit cards in the future. The credit bureaus don’t care that you got extra holiday credit card offers by mail or in the stores where you shop, they just care if your behavior reflects an increased risk. If you are planning on getting a loan of some sort in the near future (like buying a car or house) or somebody is going to check your credit for another important reason, you might want to go easy on how many credit cards you get. Getting a few credit cards is fine, but past three or four, you might start to see a dip in your credit score. You can come back from this, but it will take time.
Monitoring Your Credit Card Balance
It’s easy to keep track of your money when you have one or two bank accounts, and a few credit cards. You can make sure you have enough money in the bank to pay off your credit cards when they come due. But, as you add more credit cards, it becomes more difficult to keep tabs on what you owe.
If you get several new credit cards at the beginning of December, each with gifts on them, it’d be easy to forget about them until the bill comes at the beginning of January. When it comes time to pay off your forgotten debts, along with all of your other expenses, you’ll likely have to dip into savings or, in the worst case scenario, be unable to pay your bill.
To prevent this, if you do sign up for in-store credit cards, either try to pay off the credit card right then or immediately set aside the money to pay it off later. That way, you won’t be in hot water when the bill comes and you don’t have any money to pay for it. Ultimately, the best credit card for the holidays isn’t necessarily the one with the most rewards or the best introductory rates, it is just the one you know you can pay off before the fees and interest start piling on. That may mean sticking to your old credit card and setting a holiday shopping budget.
Higher Risk of Fraud and Identity Theft
If your identity was stolen, what would the criminal likely be doing? They would probably be trying to take out credit cards in your name, and hit the credit limits on them as quickly as possible. If you are applying for credit cards left and right at stores, it becomes harder to determine whether your identity has been stolen, or if you are just making poor decisions. The holidays are a hot time for hackers and scammers, so it’s a very important you protect yourself.
If you have hired a business to monitor your credit for identity theft, this type of behavior makes it harder to differentiate between what you are doing and what a criminal is up to. That delays stopping the malicious activity on your credit, repairing your credit, and catching the criminal. Either try to space out applying for credit cards, or actively monitor your credit score and take action when your score begins to drop.
Use Credit Cards Safely All Year-Round
Businesses want you to take out a credit card with them. They’ll offer special perks at every turn in exchange for you to shop at their store and use their credit card. This can be a flat rate off of every transaction or earning “points” that can be redeemed for store credit, but their purpose is to get you to come back.
Taking out extra credit cards has consequences. Take out too many, and your credit score will suffer. It’s possible you’ll forget you took out the card, and have an unwanted bill at the worst possible time. You might even be disguising an identity thief because of your behavior. Be smart with what credit cards you do take out this holiday, monitor your credit so you know if you need to stop applying for credit cards, and make a plan on how to pay them off.
Still on the fence about applying for that credit card? Learn more about paying with plastic at our credit card resource center.
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