Credit Card App Advice from a Senior VP of Credit Approval & Risk – Part 1

I happened to be on a flight from Prague (PRG) to Nice (NCE), randomly seated next to a Senior VP, Credit Approval & Risk, at one of the largest US card issuers. Guess what? He also turned out to be a huge mileage junkie! We got to talking about our favorite flights, cabins, destinations, hotels, redemptions, etc., everything but credit cards. As nice as he was, I could not pass up the opportunity to ask him some direct questions about one of our favorite mileage earning activities – credit cards. He politely asked if I could send an email to his personal account with some questions, rather than discussing them on the flight. Below you will find part one of our email conversation including credit card application advice – application tips, multiple pulls, and score determinants. Tomorrow, part two will include the impact of canceling cards and predictions on the future of sign-up bonuses. Part three includes reader submitted questions. If your not new to the hobby, a lot of his responses are nothing new, but it is nice to finally have some off-the-record confirmations.

1. What happens to my credit score when I apply for a card? I think the frequent flier community is actually very well educated on this subject, but here’s a quick summary. Depending on the geographical area, we pull a credit report from one or two potentially separate credit bureaus resulting in a hard inquiries on your credit report. Even in my current position, I cannot tell you the actual impact of these inquiries (it’s a hidden algorithm by the bureaus), but what I do know is that these inquiries will impact your score by lowering the average age of your accounts and increasing the amount of “new credit” on your report. Based on publicly available FICO information,  new credit accounts for 10% of your score while length of credit history accounts for 15% of the score. These are the two areas most impacted by a new application, however (and good for you guys) they are actually two of the smaller sections of the overall credit score pie. Payment history makes up 35% of the score, amounts owed 30%, and types of credit 10%. Generally speaking, expect a drop of 2-6 points per application in the first 30 days. However, remember that with your new application, you’ll be positively impacting your “amounts owed” sub score (additional credit granted to you results in a lower overall utilization if you’re not spending any more than you were prior to the application). You’ll also be positively impacting your score if you make timely payments on the new card. When all of these are taken into consideration, that 2-6 point drop reduces to 2-5 points after 90 days, 2-4 points after 180 days, and generally continues dropping until the two year mark when it will be completely removed from your score. However, the big thing missing from this equation is the positive impact of a lower credit utilization rate due to the additional credit now associated with your SSN. That can result in an increase of anywhere from 2-15 points, negating the impact of the new credit application.
2. Does applying for multiple cards on the same day lessen the impact on my score and make me more likely to get approved? Let’s start with the likelihood of approval. Without getting myself into too much trouble, the short answer is that it depends. If you are someone with a strong score that we are likely to approve, then the answer is Yes. Our automated systems review several factors prior to that automated decision you receive on the website. One of the criteria is the number of recent applications. By applying for multiple cards at the same time, you are reducing the likelihood that we will see (via our credit agency reports) that you have also applied for other cards. This is due to a time lag. I can tell you that if we do see them, they’ll often result in a denial of credit regardless of your score. Now, if you are someone who is never approved automatically (name or address discrepancies, etc.), applying for multiple cards on the same day will hurt you. The reason for this is that we will pull an updated report (though you won’t receive an additional hit) when your  application begins level two processing (non automated approval) and we will then see your multiple requests for credit (a big No No for us in such a short period of time). In terms of applying for two of our products on the same day, sometimes you’ll see one credit pull while other times you’ll see multiple. It all depends on the credit agency and whether they label our pulls as duplicates. Expect one for each application and be grateful if they are combined. That’s all I can say about this one…