Does Applying For A Credit Card Hurt Your Credit Score? (2024)

There are two ways that getting a new credit card may negatively impact your credit score. When you apply for a new card, the credit company may perform a hard pull of your credit report for review as part of the approval process. The inquiry on your credit history may lower your FICO Score but generally the impact is low (for most, this means fewer than 5 points).

When you receive a new card, the issuer will report a recently opened account, which affects your length of credit history. The exact change to your FICO Score depends on your overall credit history. A new card can, however, build a better credit history as long as you use all your accounts responsibly by paying on time and minimizing your overall debt as it relates to your overall available credit.

As explained above, there are two key scenarios where a new credit card might result in credit score damage. It’s wise to understand these potential credit setbacks before you apply for a new account so let’s take a closer look at them.

1. Your Average Length of Credit History Will Decrease

The length of your credit history is a credit scoring factor that’s worth 15% of your FICO Score and 21% of your VantageScore credit score.

When a scoring model evaluates your length of credit history, it may consider factors such as:

• How long the accounts on your credit report have been open
• The average age of accounts on your credit report
• Ages of the oldest and newest accounts on your credit report

In all of these cases, older accounts might give you an edge in the credit score department.

• Length of credit history isn’t as important as other credit score factors, but it does have some influence.
• When you open a new credit card, the average age of your accounts declines.

Average age of accounts is a factor in credit scores that can only be improved with time.

2. A New Hard Inquiry Will Appear on Your Credit Report

Hard inquiries can damage your credit score, but the impact is generally small and doesn’t last for long.

What Is a Hard Pull on Credit?

When you apply for a new account, you give a lender permission to access your credit report. This type of credit access—for the purpose of evaluating an application for additional credit—is referred to as a hard inquiry.

People who apply for new credit cards often are generally considered riskier than those who do not. For example, people with six or more credit inquiries may be eight times more likely to file bankruptcy compared with zero-inquiry consumers.

When you’re trying to build or rebuild your credit, a new credit card can often be a major asset. While you shouldn’t count on a guaranteed score increase—credit is calculated with many factors and there’s no magic bullet to defeat poor credit— there are situations where a new card might boost your score.

1. Your Credit Utilization Could Decrease

Credit utilization, or the amount of the credit you’ve used to the overall available credit available to you, is the second most important factor considered in your credit scores. New accounts may lower your overall credit utilization rate, which is good for your credit score.

Imagine you have the following two credit cards:

You calculate credit utilization by dividing your total credit card debt by your total credit card limits and converting that number to a percentage. So your overall utilization rate in the example above is 50%. Because you have $2,000 in available credit and your balances total $1,000, you’re utilizing 50% of your available credit limit.

Now, imagine that you open a third credit card account:

Although you owe the same $1,000 in credit card debt, your available credit has jumped from $2,000 to $4,000.

This higher combined credit limit lowers your utilization rate from 50% to 25%. Because you cut your credit utilization in half, there’s a good chance your credit score would improve.

2. Additional On-Time Payment History

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 counts on your credit score. For a valid FICO Score, for example, you must:

• Own at least one account that’s been open for six months and;
• Own one account that’s been updated in the last six months.

3. Your Credit Mix May Improve

Credit scoring models, like FICO and VantageScore, evaluate the types of accounts that appear on your credit report.

• Diversity in credit reports can be good for your credit scores. If you only have installment loans, for example, adding a credit card can boost your scores by adding a revolving account.
• If you already have other credit card accounts open, adding another one to your report won’t improve your credit mix but it won’t hurt it either.

Although it can be tempting to jump on an attractive credit card offer, you should take a moment to consider a few factors before you fill out the application. Think about what you may want or need to use your credit for over the next three to six months. If you have any major purchases or borrowing planned, it’s smart to put unnecessary credit applications on hold.

Do you have plans to apply for a new mortgage? Are you going to finance a new vehicle? In either case, it’s best to keep your credit history as stable as possible until the keys are in your hand.

In addition to deciding if it’s the right time to apply, you should also assess the condition of your three credit reports and scores. Credit card issuers will check your credit when you apply for a new account. You want to make sure your credit is in the best shape possible before you fill out an application.

It’s also wise to check your credit reports in advance and make sure no unpleasant surprises await you. If you discover any credit reporting errors or suspicious information, you have the right to dispute those mistakes with the credit bureaus.

Where To Access Your Free Credit Reports

Thanks to the Fair Credit Reporting Act, you can access a free credit report from Experian, TransUnion and Equifax once every 12 months. In addition, you can get weekly free reports through the end of 2023. Free reports are available at AnnualCreditReport.com.

You may also be entitled to additional free reports under any of the following circ*mstances:

• You’re unemployed and plan to apply for a job within 60 days.
• A company denies your application or offers you worse terms based on your credit when you apply for credit, insurance or employment. (You will receive an adverse action letter in the mail, and you have 60 days to claim your report).
• You receive public assistance income.
• You’re a victim of identity theft or fraud.

When you use a credit card responsibly, it can help you build credit and earn valuable rewards in the process. A credit card is also one of the safest ways to pay for transactions thanks to the robust fraud protections made available by the Fair Credit Billing Act.

However, a new credit card might not be a fit for you—at least not right away. If you plan to apply for major financing in the next three to six months, you may want to put off all non-essential credit applications in the interim.

A new credit card might also be a bad idea if you don’t trust yourself to avoid accumulating additional debt. Revolving a balance from month to month on your credit cards is expensive. It could also raise your credit utilization rate which might lower your credit score even if you make your monthly payments on time.