Jan29
Pumping and Dumping: Be Careful when using this Rewards Credit Card Tactic
There is a tactic used by many credit card customers called “pumping and dumping.”
This newest tactic is used when credit card customers open an account to take advantage of credit card rewards bonuses and points during a promotional time period, only to “dump” the credit card thereafter.
The Allure of Sign-Up Bonuses
Sign-up bonuses for rewards credit cards are quite common, as this is how many creditors lure customers into signing up for their credit card. However, many credit card customers are now signing up for these rewards bonuses and then quickly canceling the card once they have earned the bonus rewards and once the promotional rate has ended.
Earning air travel mileage is often a popular reason for “pumping and dumping,” as many customers are out for free or reduced air travel. Although this tactic has worked for many credit card customers, it can potentially backfire if used too often.
Tracking your FICO Score
The reason for this is because opening up and subsequently closing a large number of credit cards over a short period of time can lower your FICO score. So, although you think you are making out a like a bandit with rewards points, you may be actually hurting your credit score – and your ability to obtain low interest rates – in the process.
Another reason why “pumping and dumping” may be detrimental to your credit score is because a portion of your credit score is based upon the length of time you have had credit. In other words, a long relationship with a single creditor will likely give you a boost in your credit score, while short relationships with a number of creditors will likely put a ding in your credit score.
Many credit card analysts often recommend closing the newest credit card accounts before you close older accounts, as this will help protect your credit score.
Finally, “pumping and dumping” can prove to be quite confusing for many individuals, as opening and closing several accounts at any given time can result in forgotten accounts and forgotten payments. Often times, sticking to one or two credit cards, instead of becoming involved in a cycle of opening and closing various accounts, allows you to better track your spending and your credit cards.
