With two $0 balance cards, will a new card hurt my score?

Opening Credits columnist Eric Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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Question Dear Opening Credits,
I presently have two credit cards with a $0 balance on each. I have bought two condos and sold them and, as a result, paid off two mortgages. If I open a third credit card, which I am doing for the cash back and points offer, will this have a negative impact on my credit score, which is about 750 with about $55,000 left on my student loans? – Hank

Answer

Dear Hank,
It’s time to get the rewards credit card of your dreams and start racking up some points! You seem to have the qualities that any card issuer will find attractive. As long as you apply for a card that you’ll qualify for and will manage well, I see no reason why it wouldn’t lead to an even higher credit score than you have today.

Credit scores from FICO and VantageScores range from 300 to 850, so one in the mid-700s is firmly in the upper echelon. There are nuances between the way the different credit scoring systems are calculated, but in general similar rules apply. If your credit reports are populated with a few years’ worth of perfect payments, little revolving debt, and satisfied loans, your credit scores will be high. A variety of accounts in use (while not applying for too many in a short time span) will give those scores yet another bump.

Know that each time you apply for credit, a hard pull of your credit reports by the lender typically knocks about 5 points from your score. However, if you’re done flipping properties for a while, I wouldn’t worry about it as that hard inquiry impact will fade after a year.

Besides scores, there are other considerations regarding credit card and loan acceptance. The first is income. You’ll need the financial capability to send at least the minimum for the amount of debt you acquire. The more you earn, the higher the credit line you’re likely to be granted.

And then there’s the size of your current obligation. Some of your earnings are already promised to your student loans. That means the amount you can borrow is diluted by that debt. For example, let’s say your student loan started out at $75,000. With a 10-year term and a 6.8 percent interest rate, a lender would calculate the installment payment to be around $860. That’s a substantial sum that is already taking up a chunk of your disposable income. For that reason, the credit limit you may be eligible for will probably be less than if you owed nothing.

But don’t worry. If you have a decent-paying steady job, you should have no problem qualifying for a great rewards card. Odds are good that it will also be equipped with a limit that will let you charge just about anything within an typical person’s budget.

You have an interesting choice to make, though. Some rewards cards have low or no annual fees while others cost a few hundred dollars or more every year. And some require you to meet a certain spending threshold before the points are awarded. So, before you apply, evaluate each card’s terms and conditions carefully to figure out which card will be the best fit for you. Weigh things such as annual fees, APR ranges and whether you desire travel rewards or cash back. Use CreditCards.com’s CardMatch tool to get an idea of what kind of offers you'd qualify for.

Based on what you’ve written, I don’t think I need to warn you against the temptation to overcharge so you can build up maximum rewards points, but just in case, don’t do it. Debt can become unmanageable fast and the amount you’ll pay in interest will exceed the value of the points that you’ve accumulated.

See related: 10 things NOT to do when you apply for a card, Applying for a card? Your odds of approval

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Updated: 11-18-2017