How does the credit cards 5/24 rule affect your credit score?
The Credit Cards 5/24 Rule: How Does It Affect Your Credit Score?
For those who are unfamiliar with the credit card world, the 5/24 rule may seem like a mysterious term. However, for savvy credit card users, this rule is a significant factor in deciding which credit cards to apply for. The 5/24 rule is a policy that many banks follow, which restricts applicants from obtaining credit cards if they have opened five or more credit card accounts within the past 24 months. This rule has implications for credit scores, and it's important to understand how it can impact your credit.
What is the 5/24 rule and how does it work?
The 5/24 rule was first introduced by Chase Bank in 2016 and quickly adopted by other banks. The rule states that an applicant cannot receive approval for a Chase credit card if they have opened five or more credit card accounts within the past 24 months. The rule applies to all credit cards issued by Chase, including co-branded cards with partners such as Southwest Airlines and United Airlines. Other banks have implemented similar rules, such as American Express's 2/90 rule, which limits applicants to two credit cards every 90 days.
Why do banks have the 5/24 rule?
The 5/24 rule and similar policies are in place to reduce the risk of fraud and default. Banks want to ensure that they are lending money to customers who are responsible and have a good credit history. By limiting the number of credit cards that an applicant can open within a certain period, banks can reduce their risk and maintain a healthy credit portfolio.
How does the 5/24 rule affect your credit score?
The 5/24 rule can have both positive and negative effects on your credit score. On the positive side, the rule can prevent you from opening too many credit cards and accruing too much debt, which can lower your credit score. By limiting the number of credit cards you can open, the rule can help you maintain a healthycredit utilization rate, which is the amount of credit you use compared to the amount of credit available to you.
However, the 5/24 rule can also have a negative impact on your credit score. If you are unable to open a credit card due to the 5/24 rule, you may miss out on valuable rewards and benefits that come with credit cards. Additionally, if you are denied for a credit card, it can result in a hard inquiry on your credit report, which can lower your credit score.
What can you do to work around the 5/24 rule?
If you are interested in applying for a credit card but are affected by the 5/24 rule, there are a few strategies you can use to work around it. One option is to prioritize Chase credit cards over other issuers since they are the most prominent bank to enforce the rule. Another option is to apply forbusiness credit cards, which are not typically counted towards the 5/24 rule if you have a business that generates income. Finally, you can consider waiting until the five new credit cards fall off your credit report before applying for a new credit card.
While credit cards can be a great way to earn rewards and build credit, it's essential to use them responsibly. Before applying for a new credit card, make sure you understand the terms and conditions, including interest rates, fees, and rewards. Additionally, it's crucial to pay your credit card bills on time and in full to avoid late fees and interest charges. Finally, consider using credit cards as part of a broader financial strategy that includes budgeting, saving, and investing. By using credit cards wisely, you can build a strong credit history and achieve your financial goals.