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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. Here's what you need to know about how credit card applications can impact your credit and how to apply responsibly.
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® Score☉ 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 doesn't affect your credit score. Some credit card companies may even send you a preapproved offer in the mail based on a soft inquiry.
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Does Opening a New Credit Card Hurt Your Credit Score?
If you're 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 you're 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 rate—the percentage of available credit you're 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 Being Denied a Credit Card Hurt Your Credit Score?
If you apply for a credit card and get denied, there's no additional impact on your credit score beyond the initial hard inquiry.
That said, because multiple hard inquiries in a short period of time can have a greater negative impact on your credit score, it's still a good idea to ensure that you're looking at credit cards that match your credit profile.
You have the right to request a free credit report if a credit card company takes an adverse action against you, such as denying your loan application, based on your credit.
How a New Credit Card Can Help Your Credit Score
While there are some temporary negative effects when you apply and open a new credit card, you can ultimately use the new card to improve your credit score over time. The following scoring factors come into play here.
Payment History
Your payment history is the most important factor in your credit score, and paying an additional debt account on time every month can help you improve your credit history over time.
What's more, paying your credit cards in full every month will allow you to avoid interest charges on your purchases.
Credit Utilization Rate
If the new card helps you maintain or reduce your credit utilization rate, it could have a positive impact on your credit. To find your utilization rate on your credit cards, divide your total balances by the cards' total credit limits, then multiply by 100 to get a percentage.
For example, let's say you have two credit cards and want to add a third. Here are their current balances:
| Credit Utilization Example | ||
|---|---|---|
| Balance | Credit Limit | |
| Card 1 | $2,000 | $5,000 |
| Card 2 | $3,000 | $10,000 |
| Card 3 | $0 | $7,500 |
With the first two credit cards, your combined utilization rate is roughly 33%. However, adding in the third card will lower your combined rate to approximately 22%. As long as you keep your overall spending roughly the same, it can help boost your score.
How to Responsibly Apply for New Credit Cards
There's nothing wrong with using multiple credit cards to take advantage of the different rewards and benefits they have to offer. However, it's important to take a responsible approach to avoid putting too much strain on your credit score:
- Get prequalified. As previously mentioned, prequalification tools typically only use a soft inquiry to evaluate your approval odds. While there's no guarantee that you'll get approved for a card after passing prequalification, it can help minimize your chances of getting denied.
- Don't open too many cards in a short period. While it may be tempting to open multiple cards quickly to take advantage of welcome bonuses and other new-cardholder perks, try to space out your applications by at least six months to lessen the impact on your credit score.
- Don't open new accounts before applying for a loan. If you're planning to apply for a mortgage or car loan, it's best to avoid applying for credit cards in the months leading up to your loan application. The temporary credit score dip and a potential increase in your debt-to-income ratio can impact your loan approval odds.
- Manage newly opened cards responsibly. Each time you get a new card, it's important to ensure that your spending doesn't change. Racking up a balance on the new card can increase your utilization rate and make it more difficult to keep up with all of your monthly debt payments.
Learn more >> How to Use a Credit Card Responsibly
Monitor Changes in Your Credit Score
Reviewing your credit score before applying for a credit card is a good way to minimize the chances you'll get denied. With Experian, you can get free access to your FICO® Score and Experian credit report, making it easy to evaluate your credit card options and identify areas of your credit profile where you can improve. Plus you can see your progress over time and get alerts about changes to your credit.