Important notes on how applying for cards can affect your credit score.
SlingShot is committed to responsible credit, and educating our users about the advantages - and potential pitfalls - of using personal finance to travel further. Many of the plans we serve our customers include a recommendation to apply for a credit card and earn a sign-up bonus. Before you submit an application, it's important for you to understand how the system works – and if it's right for you.
How does credit work?
A solid understanding of the way credit works is essential to developing healthy personal finance habits. When used correctly, credit is a powerful tool to help you realize your goals. In fact, credit is a key pillar of the U.S. economy. It's an important part of how we make purchases, from using a credit card to buy a pack of gum at the corner store to taking out a mortgage on a family home.
If you’ve ever had a credit card, a student loan, or other credit type, you also have a credit score. In fact, you have several scores, but the most widely used is the generic FICO Score, which ranges from 300 to 850. Information from the three credit bureaus -- Equifax, Experian and TransUnion -- is used to determine your score, which will vary slightly among the bureaus.
Your FICO Score looks at your past track record of using credit to estimate how likely you are to be a responsible user of credit in the future. Lenders like credit card companies use it to determine whether to approve your application for new credit.
How is my FICO score calculated?
Your score is calculated based on 5 factors, listed in order of importance:
Why do credit cards offer free points for opening an account, and what's the catch?
Pure and simple: credit card companies want your business. In fact, they spend a lot of resources to earn the opportunity. When it comes to travel reward cards, they try to bring you in the front door by partnering with airlines and hotels to offer valuable bonuses for new customers. After you join, they want to build a long-lasting customer relationship with you by continuing to issue points for every dollar you spend and offering other useful benefits.
These "prime" cards are designed for the top tier of applicants: folks with higher credit scores who have demonstrated they are responsible users of credit. For most offers, you'll need a score of 700 to successfully apply.
There’s no catch - credit card offers are real and valuable. If you apply for a card and get approved, then you follow the offer terms to get the sign-up bonus points. The most common terms require you to spend a minimum amount on the card within a certain time frame (for example, $3,000 in 3 months). After you reach the spend minimum, the bonus points are deposited into your card account or frequent traveler program. Additionally, you'll get points for every dollar you spend on the card from the moment you start using it -- how much you get depends on the card.
Does applying for credit cards affect my credit score?
FICO's website states, "If your FICO Scores change, they probably won't drop much. If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk, but most Credit Scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on your credit scores."
Where can I get in trouble with credit cards?
We've talked a lot about why credit cards are great -- but of course, they have their potential pitfalls as well.
On rewards cards in particular, interest rates are very high. If you pay off your bill in full each month, you never have to pay extra money for interest. But if you spend beyond your means and find yourself without enough money to pay your full balance at the end of the month, you'll quickly see large chunks of your hard-earned money go to paying interest. Paying late is another hazard; late fees can be as high as $50, depending on your card.
If you can't commit to paying on time and paying in full, we advise against opening a new line of credit.
How many cards is too many cards?
The short answer: it's different for everyone.
The long answer: by better educating yourself on how credit works, you can determine how many cards you feel comfortable applying for and carrying.
There are people out there with dozens of credit cards bulging out of their wallets. At SlingShot HQ, our team members have an average of 5 card accounts open, and apply for a new card once every 10 months.
When you're deciding whether to apply for another card, take the following into account:
As it relates to SlingShot, in general, we're pretty conservative when it comes to applying for cards. While other folks on the Internet will encourage you to sign up for multiple cards (even at the same time!), SlingShot plans typically feature just the one card that's best suited for your current travel goals.