Are You Willing to Sell Your Credit Score?

As important as your credit score is, would you be willing to sell a piece of it in return for some free cash? The reason I ask is that there are tons of great credit card offers out there, but every time you apply for one, your credit score takes a bit of a hit. The good news is that the negative effects are usually short-lived.

Here’s a quick breakdown of the risks:

Applying for a new card triggers a “hard pull” of credit reports, which means that other creditors will be able to see that you’ve applied for credit. Not surprisingly, a flurry of applications can have a negative effect on your apparent credit-worthiness (and thus your credit score) as it looks like you’re in financial trouble and trying to borrow to stay afloat. Fortunately, such effects typically wear off within months.

What about the length of your credit history? It’s a well known fact that your credit score is based, in part, on the age of your accounts. Obviously, opening a bunch of new accounts will decrease the average age of your credit lines, and could therefore negatively impact your credit score. That being said, the length of your credit history only accounts for 15% of your credit score, so the risks here aren’t grave.

Finally, credit utilization… Higher % utilization (i.e., the percent of your available credit that is currently outstanding) reduces your credit score. Thus, if you’re applying for a bunch of 0% balance transfer offers in hopes of borrowing against them and stashing the proceeds in a high-yield savings account, you can expect your credit score to take a relatively large hit. The good news here is that, once you pay off the balances, your utilization will fall and you’ll be good to go.

Interestingly, if you’re mainly applying for cards to snatch up the signup bonuses, the credit utilization portion of your credit score might actually benefit. After all, you’ll have more available credit without correspondingly higher balances while these accounts are open. And if you eventually cancel them, you’ll return to the pre-application utilization level; hence, there will be no long-term effect.

So… Is it worth it?

Ultimately, that’s up to you to decide. You certainly don’t want to want trash your credit score right before you need it. You also need to be careful if you’re carrying balances, as you don’t want to inadvertently trigger an interest rate increase. Then again, with over $1000 dollars worth of credit card bonus offers floating around out there, it’s awfully tempting.