Taking Credit Card Offers Hurts Your Credit

Last week, I wrote about how to turn your good credit into cash. I purposely excluded credit card offers from the list because I wanted things that, should you implement them, wouldn’t hurt your credit. Today, I want to warn to the overzealous.

Despite the credit crisis, there are a lot of credit cards still offering new accounts a special bonus. Some award you points after your first purchase. Others offer you cash back after you spend more than a certain dollar amount. In fact, New York Times money blog Bucks reported that the British Airways Visa Signature card would soon be offering a staggering 100,000-mile promotion, worth two round-trip tickets, to new cardholders, making it one of the richest offers I’ve ever seen.

It sounds like a win-win situation right?

Unfortunately, every time you take advantage of one of these offers your credit score takes a punch to the face. Everytime you apply for a card, your credit report gets hit with a hard inquiry and those hard inquiries negatively impact your score by a few points. The exact number of points it goes down is unknown but you can rest assured it will go down.

If you’re not planning a major purchase within six to twelve months, it’s not a big deal. If you are, you could see much higher interest rates on those loans… making that bonus look really stupid.

Are there offers that won’t ding your credit? Yes.

In general, promotional offers from banks and brokers will not hurt your credit. Since there is no extension of credit, banks and brokers usually won’t pull your credit but you should call to confirm this. Banks will not conduct a hard inquiry unless you open a checking account with overdraft protection. Brokers will usually not do a hard inquiry unless you open a margin account. In both cases the bank or broker may find themselves lending you money for a short period of time, which is why they do a hard pull.

Outside of those two more common scenarios, they will only do soft pulls to confirm your identity, as required by law. Bank offers will usually be in the $100 range and you’ll be expected to maintain a sizable deposit, setup bill payments, and establish a monthly direct deposit before they’ll pay out a promotion. Brokers will usually require a minimum deposit and at least one trade. The promotional requirements are usually not terribly onerous.

With the economy starting to recover, I think you’ll start seeing more and more of these offers.

Jim writes about money at personal finance blog Bargaineering.com.

(Photo: armydre2008)