How does applying for credit cards affect your credit rating (plus other consequences)?

• 

  brainactive on 14/01/2017 - 22:06

  +5

  Applying for a credit card will reduce your rating. Under most circumstances the negative impact should be minor. The exception is when you apply for many cards in a short period of time (e.g. two cards in the same month).

  Cancelling a credit card will not have a negative impact on your credit rating (contrary to popular belief).

  If you pay off your balance before the due date, you will not be charged interest.

  Yes, it is possible and smart to keep signing up to new cards every year (a lot of ozbargainers do this and would tend to agree). Ideally you would want to be selective on which ones to apply for to reduce impact on credit rating.

  At the moment, the stand out deal is the Amex Explorer which offers 110k points (equivalent to $825) + $400 travel credit (can be used to purchase flights/hotels/sold for cash) which together more than offsets the $395 fee. The trick is to take advantage of these bonuses and churn through different cards over the year. Good luck!

  • 

    [Deactivated] on 16/01/2017 - 14:55

    Thanks for this post, I applied for the Amex Explorer as a result. I had a holiday coming up anyway so the spend will be easy to reach and the travel credit will come in real handy

• 

  CyberMurning on 14/01/2017 - 22:57

  -4

  Because own credit card means own a debt. Simple as that.

  Doesn't matter you will use it or not, doesn't matter if you pay on time or not.

  Bank see you as having a debt (as much as your credit card limit) by the time they approved your application.

  Understand now?

• 

  Elwes on 15/01/2017 - 07:52

  +1

  I don't know if anyone on OzBargain can say definitively whether cancelling a card will hurt your score, because the exaact algorithms the credit agencies use are a secret. Most people suppose it will because it does in America and Australia has moved to their style of scoring and Experian does operate in both countries.
  My experience with the American credit score algorithms was that they just consider how long you've had your longest standing line of credit as a measure of stability (even then, it's only a small factor in the algorithm). So the simplest solution would be to maintain one fee-free credit card and cancel the others.

• 

  greyeye on 15/01/2017 - 10:10

  +1

  there is no such thing as CREDIT rating in this country, there are, however, credit FILE maintained by few different company such as VEDA and D&B
  every time you apply, these financial agencies will check one or more of these credit file and leave a trail.

  such as Mr ABC has requested a new loan… and denied or granted.

  if you do not PAY the loan back, default, the financial institution will leave a trail on your credit file that Mr ABC has failed to pay back $XXX on this day.
  if you do pay back afterward, above line does NOT disappear, but will be updated like Mr ABC has paid back $XXX in full.

  any financial institution that receives your application will check these details and make risk analysis. If you have multiple applications and all of them were never approved = high risk
  you have a history of default and have trails of them = high risk

  so all the information on your records will be checked during your applications.

  having multiple CC over the yrs, and transferring balance may seem to be a good idea, but sooner or later you will run out of institutions that will give you the good deal as the file will say you have trails of CC applications.

  PS
  there are SOME institutions that will update the file when you make payback the loan in full. but these are very rare.

• 

  tomlikesbeetroot on 16/01/2017 - 00:07

  +1

  According to GetCreditScore.com.au applying for new cards has a negative impact.
  Not applying for any credit will see the score slowly rise back.

  Out of curiosity I have checked my score on that site before/after each card application. Each application made the score drop slightly. If there was multiple applications within 3 months it dropped significantly.

  Cancelling a card will likely not have any impact on your score. You can contact veda to get a free copy of your credit report. My credit report shows that only amex updates my monthly payment history and account status, so if I closed that it could have an impact. All the banks I have tried only list the fact that I made an application, not the amount applied for or whether it was approved or not.

  • 

    JIMB0 on 18/01/2017 - 06:40

    I had a score of 840 before applying for the Amex Explorer card. It has since dropped a bit over 120 points. I churn about 3 cards a year

• 

  Team Ozgiftcards on 16/01/2017 - 07:20

  +2

  Agree with the above.. it shows up on your file as an application for credit. Which banks may see as bad if there are too frequent applications in a short space.

  Another thing to note is that every $1 of credit card you have roughly reduces your borrowing capacity (for a home loan) by $4.

  E.g a bank may lend you another $80,000 on your home loan if you agree to cancel your $20,000 limit credit card.

• 

  Justaddgrum on 17/01/2017 - 20:03

  +1

  Finally got turned down for a credit card :( Never paid a cent in interest, so i think applying for too many cards and technically being capable of borrowing more money than i could pay back based on my income has been what has stopped me… Bad part is i apparently cant apply for a new credit card for six months!

  Beware how often you sign up :/

  • 

    squarepants on 17/01/2017 - 20:57

    +1

    how many did you try to apply for? and what's your income range like?

    • 

      Justaddgrum on 17/01/2017 - 23:44

      Already got accepted for the westpac credit card, which i got a 15k credit limit for. Only that and the commonwealth card.
      Hopefully reviewing my credit limit will shed some light on what has happened.

      Income range over 100k.

      • 

        nickomac on 18/01/2017 - 07:06

        didn't happen to be ANZ?

      • 

        squarepants on 18/01/2017 - 22:35

        so is that 3 applications within a short period of time with 2 approved and 1 rejected?

      • 

        Justaddgrum on 20/01/2017 - 15:08

        @squarepants:

        I think i left out some info.

        Applied for Westpac card, got accepted in December. January applied for coles card and commonwealth card. Accepted for coles card but not commonwealth.

        So im thinking i applied for too many in a short period of time. Still waiting for my credit check, in the meantime I've closed off two unused cards which may have hindered my application this time round. Who knows…

      • 

        Justaddgrum on 20/01/2017 - 15:08

        @nickomac: Not this time.

      • 

        [Deactivated] on 20/01/2017 - 16:03

        @Justaddgrum:

        I applied for coles mastercard, commbank low rate, amex explorer and anz FF black in Jan

        All accepted

      • 

        The Champagne Mile on 21/01/2017 - 12:11

        @Justaddgrum: It really depends on each individual creditor's assessments - I've previously been instantly approved for 3 x AMEX cards in a 4 month time frame, yet had an earlier rejection from Macquarie Cards with a rating in the high 700s.

      • 

        Justaddgrum on 29/01/2017 - 11:58

        @The Champagne Mile: I had a look at my credit 'rating'. And it is really just a report of my credit application history.

        For my Westpac card, i applied for a $30,000 credit limit, but was only approved for $15,000. On my credit report it shows that i have applied for 30k, even though it is not what i have. That is the only bit on the report that stands out to have given me a rejection for another application.

        Ive had to apply for a correction on that report.

• 

  dsp26 on 20/09/2017 - 13:17

  Just wanting to revive this thread instead of creating a new one… probably more aimed at individuals who are involved in the approval process:

  Scenario:
  I have 2 credit cards, one with $8500 limit (this card was a balance transfer over 18mths ago and never used) , and one with $15000 limit (approved in June 2017). Both only have about $1k each owing and neither card has ever collected interest from me as my credit card usage is purely for convenience and points earning. My credit rating is 695 (Experian - Good: 600-699) and have zero bad comments, and 7 credit cards approved over the last 5yrs.

  I want to take advantage of a new offer with better points rewards. Is it better to:
  A) Pay off both cards, close them, THEN apply for new card?
  B) Pay off both cards, keep them and close after approval of new card, apply for new card?

  Thanks in advance!