Robert Dwyer is a deal hound who spends hours each day thinking about points, and how to use them for awesome family vacations. He writes about wine at The Wellesley Wine Press. You can follow Robert on Twitter: @RobertDwyer
Travel Summary has helped a lot of us navigate the points and miles space so I wanted to share some things I learned navigating a residential mortgage refinance with his help. It’s always nice to have a “sponsor” at times like these when temptation strikes to sign up for more credit cards!
Earlier this year I wrote about 4 new credit cards I signed up for which, combined with a couple other tricks netted me 270,000 points and miles. I wasn’t particularly concerned about the short term negative impact these inquiries might have on my credit score because we refinanced just 9 months ago at what I thought was a super-low rate. We were all set!
But the way things have been going lately an opportunity to refinance presented itself once again — for the fourth time in just 6 years. I was thinking of a new batch of credit cards to sign up for and noticed we could go from 3.75% for a 20 year fixed to 2.75% for a 15 year. Another refi had to be done.
The first thing that occurred to me was how non-fun refinancing is compared to signing up for credit cards. Refinancing involves minor short term nuisance for long-term gain. Acquiring new credit cards is a breeze and you get the almost-instant gratification of sign-up bonuses flooding your accounts. I realize it’s illogical but I had to remind myself how important it is to keep an eye on the big stuff (the mortgage) and stop paying attention to the credit card stuff, at least for a while.
So about 3 months after I’d signed up for 4 new cards (which resulted in 3 inquiries after a couple of AmEx apps combined into a single inquiry) I agreed with our mortgage guy to go forward with a refinance.
I’d been monitoring my credit score with Credit Sesame and Credit Karma. They’re both free and they’re both great services in my opinion. No harm in signing up for both but if you’re going to sign up for one I’d recommend Credit Karma for their more understandable interface and frequent updates.
Both services reported a credit score for me in the 770/780 range which was higher than it was prior to applying for the cards earlier this year. My score dipped for a month or two after signing up for the cards, but after meeting minimum spends and keeping a low overall percentage of credit used I felt my score was in excellent shape for the refinance. I was however still concerned about whether the credit agency would scrutinize my recent applications.
Might they deny me credit even though I had an excellent score?
Within a few hours of emailing the mortgage broker agreeing to lock the rate, I received a notification from Credit Karma alerting me the credit agency the mortgage company uses had pulled my credit. I have to say – I was impressed with this. I signed up for Credit Karma primarily to monitor my credit score. The benefit of real time credit report monitoring was something I hadn’t considered. How great would it be to know if someone was using your identity for credit within a few hours of it happening? Tremendously useful.
A few days later we got a letter from the credit agency informing us of our credit scores. Both Credit Karma and Sesame were within +/- 10 points compared to the real scores. Very nice.
However the reports made note of several factors that “adversely” affected my credit score:
- Time since most recent account opening is too short
- Too many accounts recently opened
- Number of accounts with balances
My first reaction was “why are you taking swipes at me when I’ve got a good score?” I was like “why don’t you include some positive comments on why my score is so high?” -or- tell me what my score would have been if not for these negative marks.
But as I thought about it a little more I wanted to learn from their comments. One in particular I didn’t expect was “too many accounts with balances”. Having a lot of accounts isn’t so much of a problem — as long as they’re old accounts. And I guess could have avoided having accounts with balances if I immediately paid off seldom used cards prior to closing date. But a lot of the cards I have get used only for that particular company, like my jetBlue AmEx. I only had a balance on it from some in-flight snacks charged for the 50% off benefit.
If credit agencies don’t like to see too many accounts with balances it might be best to quickly pay off seldom used cards when you use them.
There wasn’t too much I could do about the other metrics. But since my score was high I took the demerits in stride and waited to see whether the credit agency would make a stink about the recent inquiries.
Things moved along swiftly with the refi process. A couple weeks in, someone from the mortgage company contacted me and requested I write a letter “explaining the recent inquiries and whether new debt was acquired as a result of the inquiries”.
No problem. “I did it for the points!”
Just kidding. I didn’t actually say that. I recalled guidance travel/credit card bloggers give regarded reconsideration calls. They suggest you explain how you enjoy the specific benefits each card provides.
I wrote in the letter that I signed up for the AmEx Platinum for the airline lounge access (I’m writing this from the Admiral’s Club in Boston – works like a charm!) and the AmEx Gold for the 3x on airlines and 2x on gas/groceries. I signed up for the jetBlue AmEx and Southwest Chase cards for the bonuses when buying airline tickets.
I explained that the AmEx cards are charge cards so they get paid off each month. I told them the other 2 cards did provide me with access to new credit lines, what the limits were and what the current balances were.
Simple and honest, right?
About a week later they followed up and asked for the most recent statement for each of my newest cards. I sent them in.
When I heard from our lawyer (in Massachusetts you need a lawyer to refinance) that the bank hoping to close in less than a week. I thought I was in the clear. I was tempted to start signing up for new credit cards or buy some Vanilla Reloads to achieve some bonuses on my existing cards. But a day before we were set to close I got a call from the credit agency.
They wanted to know about a certain AmEx card I had since the ’90s that had a balance of over $2,000!
I wasn’t aware of any AmEx from the ’90s (though all of my AmEx’s have an old “Member Since” date on them) so I wanted to get to the bottom of it as well. The credit agency arranged for a three way conference call with AmEx and myself and after a bunch of back and forth it was concluded that the AmEx from 1995 was actually one of the AmEx’s I signed up for just a few months ago.
American Express reports all of your cards as being as old as your oldest AmEx which is a tremendous benefit in calculating the average age of your accounts. This is different from all other credit card providers as far as I can tell and it increases the average age of your accounts (an important metric in calculating your credit score) substantially.
Remember the AmEx commercial where the guy says “I remember something my father told me: As soon as you can, get yourself an American Express card.” I got my first AmEx in college (for the $149 annual Continental flight certificate or something like that) and though I don’t carry that card anymore I sense there’s some truth in that adage.
After the credit agency learned my current balance and figured out the card from 1995 was actually a new card we were good to go. The American Express agent thanked me for being such a good customer. I said “thank you!”
The refinance closing went through the next day without a hitch.
Here’s a summary of what I learned along the way I’ll remember for next time, and for managing credit in general:
- Even though signing up for credit cards is fun, it’s more important to stay on top of other aspects of your finances like your mortgage and retirement savings.
- The more money being financed, the more scrutiny there is. Mortgages are much more rigorous than credit cards. Car financing is somewhere in between (but much more like a credit card).
- Even with a high credit score, expect probing questions about recent shenanigans.
- Although recent inquires reduce your credit score in a minor way (3-5 points per inquiry in the short run) they do seem to cause concern in a mortgage scenario. That said, their concerns can be overcome if you’re open and honest about why you applied for new credit -and- you haven’t tapped into the new credit in a major way.
- American Express credit cards list their account open date for all cards the same as the first AmEx you get. So get an AmEx early and never cancel it. If needed, downgrade a fee card to a fee-free card and keep it in a drawer somewhere.
- Sign up for Credit Sesame and Credit Karma. They’re free, provide an accurate proxy of what your actual credit score is, and monitor your credit report.
- Avoid carrying high balances on credit cards, especially in the month or two before seeking new credit. Pay balances off before closing if necessary. Keep your overall credit card usage at any moment below 5% (or lower when you’re going for new credit). Credit Sesame and Credit Karma track this for you.
- Avoid carrying a lot of small balances across different accounts. If you want to use a card for its unique benefits, pay the balance off quickly.
- Avoid the temptation of going for airline miles as a benefit associated with financing/refinancing. For example, you can earn up to 50,000 United miles by refinancing through Chase. When I compared the rates and closing costs from Chase to what I could get through a mortgage broker, the cost savings of the broker offered were far more than the value of the United miles.
- Be on your best behavior for the entire duration of the refinance period. Take it easy on the Vanilla Reloads, don’t sign up for any new credit cards, and act like a normal credit user. You’re not in the clear until you close, and you don’t want to give the credit agency any reason to look at your account with a more critical eye than they need to. You don’t want to give them any reason to deny you credit.
If you follow these rules, I think you’ll be in a good position to refinance or get a car loan (or lease) even if you have an appetite for signing up for credit cards for bonuses.
The only question I have is how far back they look (with a critical eye) when refinancing? New inquiries stay on your report for 2 years I believe so I can imagine it being a more uncomfortable discussion if I’d been at this for 2 years, signing up for 4+ credit cards every 91 days. “Would you mind telling us about your 32 recent inquiries?” Umm – I did it for the benefits!
Although the application process gets more rigorous each time we do it, this refinance went through swiftly. From “lock” to “closed” in 27 days. That’s fantastic. And it’s terrific to shorten the duration of our mortgage while paying just a little more each month with less of our money going towards interest.
Question of the Day: Any other tips you have for mixing credit card sign ups with a refi?