Does Applying for a Credit Card Hurt Your Credit?

Applying for a new credit card can be tempting, especially with all the rewards, discounts, and perks that come with different cards. However, before you submit that application, it’s important to understand how it could impact your credit. In this article, we’ll break down how credit card applications work and what effects they can have on your credit scores and reports.

How Credit Card Applications Work

When you apply for a new credit card, the card issuer will perform what’s known as a “hard inquiry” on your credit report. This means they will access your credit information from one or more of the three major credit bureaus – Experian, Equifax, and TransUnion. These inquiries are recorded on your credit report.

Too many hard inquiries in a short period of time can negatively impact your credit scores. The reason is that it may look like you are desperately seeking new credit accounts which can make lenders see you as a riskier borrower.

In contrast, a “soft inquiry” only reviews your basic information and does not require accessing your full credit report. Soft inquiries don’t affect your credit at all Some credit card companies may make pre-approved offers based on soft inquiries

Short-Term Impacts on Your Credit Scores

When you apply for a credit card, that hard inquiry will likely cause a small, temporary drop in your credit scores – typically less than five points according to FICO. However, the impact lessens over time

One inquiry alone won’t hurt your scores too much. The problem comes when you apply for several credit cards within a few months. Multiple hard inquiries over a short period can add up and cause a more significant hit to your scores.

Longer-Term Impacts on Your Credit Profile

Once approved, a new credit card account can also influence other factors that determine your credit scores and overall profile:

• Credit history length – The new account will lower the average age of your credit accounts, which could modestly impact your scores.

• Credit utilization – Your new available credit limit affects your credit utilization ratio, or how much of your total credit you are using. This factor makes up a significant portion of your scores.

• Credit mix – Adding a new credit card brings more diversity to your different types of credit accounts, which is generally seen as positive by scoring models.

• Payment history – Making on-time payments on the new card will contribute to your positive payment history. Missing payments can hurt.

• New credit – Too many new accounts in a short timeframe can be seen negatively. Apply for new credit cards sparingly.

Ways to Minimize Damage to Your Credit

If you want to apply for a new credit card responsibly, here are some tips to minimize the impact on your credit:

• Check your credit reports and FICO scores first so you understand your starting point. Monitoring services like CreditWise provide this for free.

• Consider getting pre-qualified, which shows your approval odds with just a soft inquiry. Capital One and other issuers offer this.

• Only apply for one new card every 6 months or so. Give some space between applications.

• Don’t open new accounts right before a major loan application like a mortgage.

• Make sure you can manage repayment responsibly on any new accounts you open.

• After approval, keep credit card balances low and pay on time each month.

Long-Term Benefits of Judicious Credit Card Use

Used judiciously and managed prudently, credit cards can help build your credit over time. As you demonstrate responsible use of credit, your scores will gradually improve. You’ll also show lenders that you can handle different types of credit successfully.

Just remember to limit hard inquiries and new accounts in the short term, and always practice good credit card habits for the long term – keep balances low, pay on time, and only spend what you can afford to pay back. If you follow these rules, credit cards can be a boon rather than a detriment to your credit health.

Key Takeaways

• Credit card applications usually involve hard inquiries, which cause temporary dips in your credit scores. Too many in a short period creates bigger drops.

• Once approved, new accounts also influence credit history length, credit mix, utilization and other scoring factors.

• Impacts are short-term as long as you use new credit cards responsibly and sparingly apply for new accounts.

• Pre-qualification, conservative applications, low balances and on-time payments are key to minimizing credit damage from new credit cards.