Applying for a credit card can impact your credit score, especially if you apply for multiple cards in a short period. Additionally, opening a new account can impact your credit score, though responsible use can ultimately help your score improve.
Applying for a credit card can temporarily lower your credit score by a few points, but if you apply for and open multiple cards in a short period of time, your score may take a larger hit. Heres what you need to know about how credit card applications can impact your credit and how to apply responsibly.
Getting a new credit card can be tempting – maybe you want to take advantage of a great sign-up bonus or 0% intro APR. But before you apply, it’s important to understand how a new credit card could impact your credit score.
How Credit Scores Work
Your credit score is a three-digit number that gives lenders an idea of how likely you are to repay debt. The most commonly used credit scores are FICO scores, which range from 300 to 850. The higher your score, the better.
Your credit score is determined by several factors including
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Payment history (35% of your score) Whether you pay your bills on time
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Credit utilization (30%): The ratio of credit card balances to total credit limits.
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Length of credit history (15%): How long you’ve had credit accounts.
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New credit (10%): Recent credit card applications and new accounts.
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Credit mix (10%): Different types of credit accounts like credit cards, auto loans, etc.
As you can see, new credit accounts make up 10% of your overall FICO score. So applying for and opening a new credit card can definitely impact your score. Let’s look at how.
Does Applying for a Credit Card Hurt Your Credit?
Simply applying for a new credit card results in a “hard inquiry” on your credit report. Hard inquiries can cause a small, temporary drop in your credit score – usually less than 5 points.
Here’s why credit applications cause your score to dip slightly:
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A new inquiry indicates you’re seeking new credit. Multiple recent inquiries can signal higher risk to lenders.
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Each hard inquiry remains on your credit report for 2 years, though its impact fades over time.
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The drop is bigger if you have a short credit history and fewer accounts.
The good news is the hit from a single credit card application is minor and usually recovers within 3-6 months. But if you’re about to apply for a mortgage or auto loan, it’s best to minimize inquiries in the months leading up to your application.
Does Opening a New Credit Card Hurt Your Credit?
While applying won’t severely damage your credit, opening and using a new account can have a larger impact on your score. Here are some potential downsides:
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It can lower your average account age: Length of credit history counts for 15% of your FICO score. If you open a new card, it will bring down the average age of all your accounts. This has a bigger effect if you don’t have many other credit cards.
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It can increase your credit utilization: This happens if you make large purchases on the new card or transfer balances from other cards. High utilization (over 30%) hurts your score.
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You could miss a payment: Payment history is the biggest factor in your score. A single late payment on a new account can seriously damage your credit. Set up autopay to avoid this scenario.
However, there are also ways a new credit card can help your credit:
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Increases your total credit limit: A higher overall limit will lower your utilization as long as your spending stays the same.
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Builds your credit mix: Having different account types shows lenders you can handle diverse credit.
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Establishes new on-time payment history: Making timely payments builds positive credit history.
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Earns sign-up bonuses and rewards: Cards often offer incentives you can redeem for statement credits, cash, or travel.
Tips to Minimize Credit Score Damage
If you want to apply for a new credit card without tanking your credit, here are some tips:
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Space out applications by 6 months: Allow time for your score to rebound before the next hard inquiry.
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Consider being an authorized user first: Becoming an authorized user on someone else’s account can build credit without the hard inquiry.
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Ask for a credit limit increase on current cards first: This preserves your length of credit history.
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Pay balances in full each month: Keep utilization low on all cards to avoid score damage.
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Set up autopay: Never miss a payment on new or existing accounts.
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Check your credit reports: Make sure there are no errors negatively impacting your scores.
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Consider a secured card: These require a refundable deposit and are easier to qualify for.
The Impact Over Time
In most cases, any negative credit score impacts from opening a new card are temporary. Within 6 to 12 months, the effects of hard inquiries and lower average account age should fade. As you use the card responsibly by paying on time and keeping balances low, a new account can start positively contributing to your credit mix and history.
Be sure to check your credit reports and FICO score several months after getting a new card. This will allow you to see exactly how your credit was affected. Monitoring your score over time enables you to tweak credit behaviors to achieve your goals.
The bottom line? Applying for or opening a new credit card can temporarily ding your credit score. But used wisely, a new account can be a strategic addition to build your credit profile. Just be sure your application and spending habits don’t send the wrong signals to lenders. With some care, a new card can be a credit boost rather than bust.
Does Applying for a Credit Card Hurt Your Credit?
When you apply for a credit card, the card issuer will typically run a hard inquiry on one or more of your credit reports. According to FICO, a single hard inquiry will typically knock fewer than five points off your credit score.
That said, inquiries remain on your credit report for two years, and if you apply for more than one card in a short period of time, those multiple inquiries can have a compounding negative effect. Hard inquiries only impact your FICO® ScoreΠand Experian credit report for up to 12 months, however, and that impact lessens over time.
To minimize the potential impact of hard inquiries, look for opportunities to get prequalified for a card before you apply. Many card issuers offer prequalification tools that can give you an idea of your approval odds with just a soft inquiry, which doesnt affect your credit score. Some credit card companies may even send you a preapproved offer in the mail based on a soft inquiry.
Does Opening a New Credit Card Hurt Your Credit Score?
If youre approved for a credit card, your account will be automatically opened. A new credit card can impact your credit score in a couple of ways:
- Length of credit history: The new account will lower the average age of your accounts. That may not be a big issue if you have a long credit history, but if youre relatively new to credit, it can have a more significant impact on your score.
- Credit utilization: With a new credit card, your total available credit will increase, which can help lower your credit utilization rateâthe percentage of available credit youre using at a given time. However, if you start racking up debt on the new card, it could increase your utilization rate, damaging your score.
The good news is that the impact on your credit score for both of these factors is generally temporary in nature. Paying your bills on time and maintaining low balances can make it possible for you to improve your credit over time with a new card.
Learn more: How Credit Cards Can Affect Your Credit Score
Does Opening a New Credit Card Hurt Your Credit Score?
FAQ
How much does your credit score go down when you open a credit card?
According to FICO, a single hard inquiry will typically knock fewer than five points off your credit score. That said, inquiries remain on your credit report for two years, and if you apply for more than one card in a short period of time, those multiple inquiries can have a compounding negative effect.
Why did my credit score drop 100 points after opening a credit card?
Your credit score drop is likely due to the high utilization on that one card. A $10000 purchase pushed your utilization ratio on that card to around 48%, and credit scores are pretty sensitive to that–even if it’s just one card.
How much credit do you lose when you open a credit card?
The inquiry stays on your credit report for up to two years, but its impact on your credit scores typically ends within a few months, as long as you keep up with your bills. New credit, including the hard inquiries it generates, accounts for about 10% of your FICO® Score Θ for free.
How much does opening a credit card raise your credit score?
Rossman notes that when people open a new credit card, doing so essentially lowers the average age of their credit accounts. “I would say for most people, the total impact is probably not going to be more than 10 to 20 points and probably shouldn’t linger more than like three to six months,” says Rossman.
Does opening a new credit card hurt your credit score?
Link Copied! Many people assume that opening a new credit card will hurt your credit score, which then leads them to believe that opening a lot of new credit cards will hurt your credit score even more. But that’s not exactly how it works.
Does opening a credit card increase your credit score?
Opening a credit card helps expand the types of credit you have if you don’t have one yet. If you do, then there will be less impact. Your credit report is a history that makes up the largest part of your credit score and represents how you handle credit. Your monthly payments on your new credit card will add to this.
Can a credit card hurt your credit score?
But if you can responsibly use your credit card only for purchases you would otherwise make with cash or a debit card anyway, you can safely open one or more new credit cards without significantly hurting your credit score. And in the long run, you can actually end up better than you started.
Does a new credit card affect your credit score?
Payment history is the most important factor influencing your credit score. Payment history makes up 35% of your FICO Score and 40% of your VantageScore. Managing a new credit card well can improve your score. If the new credit card is your first account, however, it may take some time before it is factored into your credit score.
What happens if you open a new credit card?
Opening a new credit card can offer an opportunity to earn rewards, build credit or take advantage of an introductory offer. When you apply for a credit card and open a new credit card account, you might see a brief dip in your credit scores.
Does opening new lines of credit hurt your credit score?
While it is true that recklessly opening new lines of credit and abusing them (i.e., racking up large balances, carrying interest and missing payments) can hurt your credit score, there is no long-term impact on your score from simply opening new accounts.