This is a cautionary tale I learned well this past year. Ultimately, there was just about zero lasting negative effect, so this definitely may not be a don’t-do for everyone, in every situation, but for me it was basically a waste of a hard inquiry to open a card that was mostly useless.
What card was that? The Chase Slate, which is one of the few cards, if not the only card, on the market, that offers 0% APR on both purchases and balance transfers for the first 15 months, with no balance transfer fee for the first 60 days the account is open.
That’s a huge one. Every other card on the market has a balance transfer fee, which is generally 3% of the amount being transferred, which is pretty absurd and instantly wipes out most of the benefit of the 0% APR. This card was different however, so I decided to give it a try and borrow $10,000 for free for 15 months and invest that money elsewhere, earn a potentially solid amount of interest (8% would mean the signup bonus was worth $800), and have a card with no annual fee I could keep for the rest of my life to help increase my average age of open accounts.
The problem? Well, this graph from CreditKarma sums it up pretty nicely. Note that I opened this card in April, so it was first reflected on my credit score in May. Also, note what happened in May.
To sum it up, my credit score dropped from near-800 in Feb 2015 to 710 in May 2015, a precipitous drop of 90 points, precipitated solely by my having opened the Chase Slate and borrowed close to my credit limit on the card ($10,000 out of a limit of $10,300).
This was pretty bad, but thankfully I had no real need for a good credit score and no particularly difficult cards I intended to open for the rest of the year, and since the damage had already been done and I was fairly confident that it was entirely reversible, I decided to keep the money borrowed for several months and see what would happen.
You can see a tiny crawl and increase in my credit score in the next few months, until a huge rise of 50+ points from October to November. That’s when I paid off $6000 of the Chase Slate, deciding to finally be done with my shitty credit score, and appropriately, my credit score skyrocketed to being close to where it once was.
I still have $3000 out of my $10,300 limit borrowed, or under 30% utilization. That’s the general rule people give for where you should aim to stay under with each of your cards, and now I believe it. I didn’t think this would affect me nearly as much as it did, as despite being just about maxed out on one of my cards, I still had less than 10% utilization across all my cards, with a combined credit limit of over $100,000 across all cards.
But it seems that’s irrelevant – your credit score is calculated by taking into account any card you have a high utilization on for that card alone, not across your entire credit limit over all cards. So if you have a credit limit of $1000 on one card, and $100,000 on another, and you spend $900 on your first card, your credit score may very well drop 90 points like mine did, whereas if you spend $900 on your second card, it’s probably not going to have even the slightest impact.
Again – I have $3000 of debt left on my card and my credit score is already almost back to where it used to be, so borrowing less than 30% seems like it won’t have nearly as much affect as any amount higher than that.
This also seems to prove my theory that the impact here is entirely reversible – as soon as you pay off all that debt, your credit score basically will skyrocket back to where it used to be. So with that in mind, if you really need to borrow money, and you don’t need a good credit score for other purposes like opening other credit cards in the near future, opening a card like the Chase Slate might very well make sense.
That said, it was nowhere near as profitable as I’d hoped it would be, and given the questionable investments I made with the money (such as buying into an index fund at the height of the market), I’m not even sure I came out net positive.
But I did learn a lot from the experience, including the fact that you can open credit cards just fine with a much lower credit score than I’m typically used to (opened the AMEX Business Gold and the AMEX Delta cards for instance) – during the entire experience, I wasn’t rejected for a single card, and didn’t even have to go through reconsideration. So who knows? Your mileage may vary. Tread with a sprinkling of caution.