Have you picked up your mail, and sighed in disbelief, due the amount of credit card offers you receive on a regular basis? You know your business could benefit from an influx of capital, but you have this nagging feeling that applying for a new line of credit might hurt the excellent credit score you have worked so hard to maintain. You would like to know however, how your credit score will be impacted by applying for two credit cards in one week. The reality is your nagging feeling has merit. Submitting an application for one new credit card will likely impact your credit score but only slightly. The consequence of applying for two credit cards in one week will be more impactful than applying for one credit card. Every time you apply for a new line of credit it creates a ‘hard inquiry.’
A hard pull, (aka hard inquiry), indicates that you have applied for credit – a mortgage, a student loan, a credit card or perhaps an automobile loan. In order to make a credit decision, a lender, pulls your credit report to determine if you, meet the underwriting guidelines. In general, a hard pull has the ability to drop a credit score by five – ten points. It is also imperative to be attentive as to how often you apply for credit. Multiple inquiries (caused by applying for two credit cards in one week) collect on your credit and become visible to other creditors making credit decisions for car loans, mortgages, etc.
It is also important to note that if a series of several credit inquiries from the same lender appear on your credit report across a reasonably short time, these intra-related inquires has a reduced impact upon a credit score.
The hard inquiry impact on your credit report changes dramatically when you apply (and/or open) more than one credit card within a small time frame, i.e. a week or so. And while it is prudent to shop around to find the most competitive deal, when it comes to credit card shopping, it is best accomplished by using online tools that allow you to compare, side by side, a variety of credit card offerings. This is because your in-depth research avoids third party creditors from pulling your credit report to make their credit decisions. Take the time necessary to find which cards offer the features and benefits you are looking for in a new credit card.
The bottom-line: Applying for even a couple of credit cards in just one week has the capacity to drop your credit score significantly.
To fully understand how credit card applications (i.e. inquiries) impact your credit score, be it a VantageScore or a FICO score, it is imperative to understand just how inquiries affect your credit score. As a reminder, a hard credit inquiry is created any time you apply for any type of credit card, and will always have some sort of impact on your credit report. And, while the hard inquiry’s credit score impact reduces with the passage of time, it remains on your credit report for up to 2 years. However, the majority of credit cardholders recover their reduced points within a half-year. Unless, of course, your credit score was already poor when those credit score re dropped. In that case, even a few point drop might have a heavy impact on your borrowing ability.
The ultimate goal of credit card stacking is to set up a situation where you have several credit lines to finance your business operations. Lenders choose to avoid advertise these products with the moniker ‘credit card stacking’ as this set up congers up all sorts of negative perceptions. Instead, they morph the advertised concept to include – Lines of credit that are unsecured!
But make no mistake about it – and no matter how you refer to the concept, the lenders’ primary goal is to provide business owners with the most credit and at most competitive rate.
While many entrepreneurial types find these set-ups a bit dubious, their existence meets a very real need in the marketplace. Small businesses and even start-ups are often have limited (sometimes even no options) financing options, this strategy can be of help in those situations.
While there are other methods to finance low revenue start-ups and businesses, these alternative methods require risking home equity, retirement funds and/or personal monies. One such option is a Merchant Cash Advance, which, for the most part is an extremely costly option that and ciphers profit before it is even earned.
Credit cards and the methodology of stacking also offer a quick turnaround, – typically a month or even less.
Stacking credit cards can also be used as a backup; a safety net set in place in case you are hit by an unexpected financial situation and need quick funds. In other words, the credit cards are held but only used when a situation arises that require you to use them. In this way, you do not accrue interest on the credit card until you choose to use them. As you begin to pay down the balances, new credit becomes available should another situation arise that requires their use.
Obtaining credit cards requires the borrower to be able to show a really good credit history and profile. Credit card lenders always have at their option the ability to freeze credit lines should an internal warning be generated when there are a predetermined missed payments, or the business’ revenue significantly declines.
The bottom-line: Remember that if you are stacking credit cards, you will be shuffling different accounts and therefore, different due dates. This might become confusing if you lack the time to stay on top of when payments are due.
Keep in mind that your credit score is one of the primary criterions used by credit decision makers. If your financial behavior reveals that you have been applying for two credit cards in one week, you credit score will reflect this fact.
Also remember, that a credit score is a living breath item. If you have made some missteps and your score has already dropped, be patient and modify your mismanaging ways and your score will bounce back. There isn’t a magic number of outstanding credit accounts that will generate an 800+ score; there are just too many variables to consider. Pay attention to your score often and determine the right number of credit cards for YOU.