Last week I wrote about how you could earn up to 62,500 Hilton HHonors points when you sign up for the Hilton American Express card, spend some money, and stay a few nights at Hilton. All in all, it looks like a no lose proposition for someone who would otherwise meet those requirements right? The nights aren’t free but if you’re going to be staying there anyway you might as well earn some bonus points right?
The allure of free points and miles when you sign up for a new credit is really appealing but it isn’t free, even if there is no annual fee. There are the costs you can see and the costs you can’t. It’s clear that hotel stays will cost you money. It’s clear that spending money will, of course, cost you money! There is, however, one cost that you will pay that you may not realize and it’s a small hit to your credit score.
Your credit score is based on a variety of factors and one of them is the number of new accounts you’ve recently applied for. When you apply for a credit card, the credit card issuer will initiate a hard inquiry for your report and that inquiry will result in a small reduction in your score. The reasoning is that someone who is requesting more credit is riskier than someone who isn’t.
Normally, this isn’t a big deal. Your score will take a temporary hit but it’ll recover shortly. This is most damaging right before you need a large loan, such as on a home mortgage or a car loan. If you are planning on getting a loan like that within a year, I’d avoid apply for any new credit cards regardless of how many points they’re offering! If your score drops enough, you could end up paying thousands of dollars in interest or even be denied the loan.
If your score is high enough, you can check with a service like myFICO, or you don’t intend to get a loan in the near future, by all means go for it. I personally feel that you shouldn’t let your credit score dictate what you can and cannot do, but sometimes we need to bend a little to its will in order to get what we want.
So the next time you see a hot new offer for tens of thousands of miles or points, remember it does come at a small cost.