It’s often called credit card hopping: applying to multiple credit cards and opening new accounts and sometimes closing old ones – usually, to take advantage of a new cash bonus, rewards points or other offers. It’s a strategy sometimes promoted by personal finance experts and naturally by credit card comparison websites.
And it can be a fine strategy. If you credit card hop without any problems, you may well come out ahead, constantly earning extra cash bonuses, months of zero interest cycles and rewards points that pay for airfare and hotels. It can also, of course, be the dumbest thing a consumer can do, in which you enter a world of exorbitant annual fees and – if you stumble and start missing payments – a universe of late fees, revolving debt and a plummeting credit score. If you’re going to credit card hop and don’t want to end up hopping mad, you’ll want to follow these rules.
Be organized in how you pay the cards back. Ben Luthi is a Provo, Utah-based staff writer for the website StudentLoanHero.com. He says that he currently has 12 credit cards but has cycled through close to 30 over the last couple years.
“To avoid having things blow up in your face, I recommend using a budgeting software that offers direct import [with your credit cards]. This way you can keep track of all your accounts and transactions in one place. You should also keep track of your due dates in a spreadsheet so you can avoid late payments,” Luthi says.
And any personal finance expert will tell you, if you want the perks of having multiple credit cards to benefit you – pay the card back in full every month. Carrying debt from one month to another, unless perhaps you’re in a zero-interest cycle, will wipe out any financial gains you make on extra rewards points and cash bonus offers.
Pay attention to your credit score. If you’re applying for a new credit card every several months or so to chase rewards points and cash bonuses, be sure to occasionally monitor how that’s affecting your credit score – and be careful about opening new accounts if you’re planning on making a big purchase soon, warns Kristin McGrath, an Austin, Texas-based editor for the website CreditCardForum.com.
“Opening new cards dings your credit score a bit and can make you look credit-hungry,” she says. “So, if you’re on the cusp of getting a major loan, like a car loan or mortgage, this isn’t a game you want to play.”
Learn everything you can about each credit card. Yes, the perks and rewards points are important, but don’t forget to read up on everything as well. Maybe once you get familiar with a card, you’ll realize you aren’t thrilled with its high annual percentage rate (which won’t matter if you pay everything off every month, but which will if you don’t). You may not like the grace period – that is, the time you have to pay off a new balance from the moment you receive your bill until you receive finance charges.
“It’s all about reading the fine print,” says Matt Freeman, head of credit card products at Navy Federal Credit Union, headquartered in Vienna, Virginia.