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Advice

A millennial millionaire with 15 credit cards shares the one time he won't open a new one

Todd Baldwin is a credit card optimizer who abides by this steadfast rule. Here's when to avoid applying for a new credit card.

Photo courtesy of Todd Baldwin

At 28 years old, Todd Baldwin is a self-made millennial millionaire thanks to his investment in real estate.

But along with the six rental properties — worth over $4 million — that he currently pays mortgages on, Baldwin likes his plastic. Today, the avid credit card user has 15 cards in his name.

Credit card sign-up offers come in handy for Baldwin when he knows he has a big expense coming up, such as furnishing one of his properties to list on Airbnb or making a repair on his car, a paid-off 2009 Ford Focus he shares with his wife. Since he is making the expense anyways, he figures he might as well earn some rewards for it.

Baldwin usually opens up a new credit card every six months, depending on what the perks are. "I look for new account bonuses, airline miles and cash back," he tells CNBC Select. "I currently have enough miles to travel to and from Europe completely for free."

Baldwin sticks to the recommended timeline to open new credit cards, which is roughly no more than every six months. But although he likes to take advantage of cards' generous welcome bonuses, there is one scenario when he refuses to apply for new credit. His steadfast rule is to refrain from doing so while he is in the process of buying real estate because he knows it lowers his credit score.

How applying for new credit lowers your credit score

Because of the immediate impact on his 3-digit credit score, Baldwin doesn't risk applying for credit within a few months before he is trying to get approved to buy a new property.

"If I think I'll be applying for a new property in the next 90 days, I won't apply for any new credit," Baldwin says.

This guideline pertains to any type of borrower, not just credit card optimizers like Baldwin. Applying for new credit, whether it be a credit card or a car loan, temporarily dings your credit score a few points because it results as a "hard inquiry" on your credit report.

When a credit card issuer or lender pulls your credit report from one of the three main credit bureaus (Experian, Equifax or TransUnion) to see how credit worthy you are, this is called a hard inquiry (or "hard pull"). Regardless if you end up being approved or denied for the credit card or loan, you still have a hard inquiry listed on your credit report.

Fortunately, your score can bounce back in a few months if you use your card responsibly, like paying your balances on time and in full. And although hard inquiries remain on your credit report for two years, popular scoring model FICO only considers inquiries from the last 12 months when calculating your credit score, and they make up only 10% of a FICO score calculation.

The damage is also not much: According to FICO, one credit inquiry on most people's credit reports will take less than five points off of their FICO score.

Learn more: The 5 reasons why your credit score might suddenly drop

Are hard inquiries OK to have?

The answer is yes — periodically. After all, the first step in building credit is having credit.

Just make sure you spread out your applications for new credit cards so that you don't have a bunch of hard inquiries appear at once on your credit report. This may signal to issuers that you are living beyond your means. You can pull your credit report for free (with no harm to your score) by visiting AnnualCreditReport.com. Look for any hard inquiries in the report's credit inquiries section.

And, like Baldwin, don't apply when you know lenders are about to check your credit score to approve you for a new loan. You want the highest possible score that you can show for.

To see how many inquiries you have on your report, check your credit score for free. Use resources like CreditWise® from Capital One, Chase Credit Journey or Discover ScoreCard. There are also credit monitoring services that can help keep track of changes in your score and alert you of potential fraud. Some of our favorites include Experian free credit monitoring and FICO® Advanced for the most accurate credit score updates, used in over 90% of lending decisions.

Learn more: The 6 best credit monitoring services of 2020

CreditWise® from Capital One

CreditWise® from Capital One
Information about CreditWise has been collected independently by CNBC and has not been reviewed or provided by the company prior to publication.
  • Cost

    Free

  • Credit bureaus monitored

    TransUnion and Experian

  • Credit scoring model used

    VantageScore

  • Dark web scan

    Yes

  • Identity insurance

    No

See our methodology, terms apply.

Experian Free Credit Monitoring

Experian Free Credit Monitoring
Information about Experian free credit monitoring has been collected independently by CNBC and has not been reviewed or provided by the company prior to publication.
  • Cost

    Free

  • Credit bureaus monitored

    Experian

  • Credit scoring model used

    FICO

  • Dark web scan

    Yes, one-time only

  • Identity insurance

    No

See our methodology, terms apply.

FICO® Basic, Advanced and Premier

FICO® Basic, Advanced and Premier
Information about FICO® Basic, Advanced and Premier plans have been collected independently by CNBC and has not been reviewed or provided by the company prior to publication.
  • Cost

    $19.95 to $39.95 per month

  • Credit bureaus monitored

    Experian for Basic plan or Experian, Equifax and TransUnion for Advanced and Premier plans

  • Credit scoring model used

    FICO

  • Dark web scan

    Yes, for Advanced and Premier plans

  • Identity insurance

    Yes, up to $1 million

See our methodology, terms apply.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.