Claiming a Big Credit Card Sign-Up Bonus Can Actually Improve Your Credit Score -- Here's How

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Fierce competition in the credit card industry has its advantages, particularly for cardholders claiming sign-up bonuses. Banks know a large bonus is a key factor that drives sign-ups, and issuers haven't shied away from going toe to toe by packing their cards with valuable perks and rewards. But for cardholders looking to jump, it's important to know a few crucial facts first.

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The Motley Fool analysts Nathan Hamilton and Michael Douglass talk in the video below about how signing up for a new card can actually improve your credit score over the long term. Tune in to learn more, and then review our picks of the best credit card sign-up bonuses for a few of The Motley Fool's favorites.

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Douglass: Jordan asks, "I'm pretty good with not over-spending. Is there any detriment to getting new cards simply to utilize the sign-up bonus?"

Hamilton: Look at it this way: when you're applying for new card, you're going to have a hard inquiry on your credit score, which generally is going to result in a 5-10 point reduction in your score. But, I'm actually a fan of signing up for sign-up bonuses, because if you look at the long-term benefits to your credit score, it can be pretty favorable, because what FICO wants to see, the two the most important factors, are payment history and credit utilization. If you can get another card and establish more of a payment history for FICO to crunch the numbers and issue you a score, and you're also managing your debt wisely with that card and keeping utilization low, your score is actually going to benefit over the long-term compared to not signing up for that card and getting the sign-up bonus. There are people out there, if you go on message boards or various web sites, they churn offers. And generally, they do tend to have some pretty good credit scores because they follow the credit behaviors that FICO likes to see. So, there's not any huge impact overall. But as a whole, there are benefits to establishing a relationship with your credit card provider, because you can get lower APRs, you can get various deals and so forth. There are perks beyond just the sign-up bonus that are worth considering.

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