How Much Does Opening a New Credit Card Affect Your Credit Score?

Opening a new credit card can have a small, temporary impact on your credit score. But it’s important to understand the factors behind this dip, how long it lasts, and how a new account can help build your credit over time. This article explains how credit scores work, why opening a card causes a short-term drop, and how you can minimize the impact.

What Goes Into Your Credit Score?

Your credit score is a three-digit number that summarizes your creditworthiness It’s calculated based on the information in your credit report from the three major credit bureaus – Experian, Equifax, and TransUnion.

The most commonly used credit score model is the FICO score, which ranges from 300 to 850. In general, scores above 700 are considered good and anything above 750 is excellent

FICO scores take into account five main factors:

• Payment history (35%) – Whether you make payments on time. This is the most important factor.

• 30% of the amount you owe is your credit utilization ratio, which shows how much of your available credit you are using.

• Length of credit history (15%) – How long you’ve had credit accounts open.

• New credit (10%) – How often you open new accounts, including credit cards.

• Ten percent of your credit mix is made up of different types of credit accounts, like installment loans, mortgages, and credit cards.

You can see that new credit accounts make up an important part of your FICO score. This is why getting a new credit card and applying for it causes a small, short-term drop in your score.

Why Does a New Credit Card Lower Your Score?

A “hard inquiry” is a check that the credit card company makes on your credit report when you apply for a new credit card. This signals that you are seeking new credit. Too many hard inquiries in a short amount of time can make lenders think you are a higher risk.

Hard inquiries can lower your credit score by a few points. But this impact is minor (less than 5 points) and temporary. The effect of a new inquiry diminishes over 6-12 months as you build a positive payment history with your new account.

If you are approved for the card, your score may also take a slight hit when the new account is added to your credit reports. Here are two reasons why:

• Lower average age of accounts – If you only have a few credit cards, a new one can significantly reduce the average age of your accounts. FICO likes to see a longer credit history.

• Higher credit utilization – If your new card has a large credit limit, it can temporarily increase your overall utilization if you charge a big purchase right after opening it. Try to keep utilization below 30%.

However, if you have several established cards, opening a new one makes less of an impact on your credit age and utilization.

How Long Does the Credit Score Drop Last?

The effect of applying for and opening a new credit card diminishes quickly over time. Here is a general timeline:

• 1-3 months: The hard inquiry has the biggest impact during this window. Your score can drop a few points but will quickly rebound.

• 6 months: As you build a history of on-time payments with your new card, the impact of the inquiry continues to fade. Utilization also improves.

• 12 months: The new account is no longer considered “new credit.” Its full effect on your score has diminished.

Within a year, any credit score drop from getting a new card will be erased completely as long as you use the card responsibly.

When to Avoid New Credit Cards

While a small temporary drop from a new card is normal, there are certain situations where applying for credit can hurt your score more. Avoid new credit card applications when:

• You’re about to make a big credit application – If you’re planning to finance a car or mortgage soon, wait until after approval to get a new card. Too many recent inquiries can delay or derail a big loan.

• You have late payments – If your credit report shows recent late or missed payments, adding a new account can signal greater risk to lenders.

• You have a short credit history – The impact is bigger if you only have a few young accounts. Wait until your history is longer.

• You’re trying to raise a fair or bad score – Under 700, new inquiries make less of a difference. Focus instead on improving utilization and payment history.

How a New Credit Card Can Help Your Credit

Responsibly opening and managing a new account demonstrates you can handle more credit and builds your history. Here are some of the ways it can have a positive impact:

• Increases total available credit – If your spending stays the same, a higher total limit helps lower your utilization.

• Shows responsible use over time – Making on-time payments builds your positive history. This improves your score as the new account ages.

• Adds account diversity – Mixing credit cards and loans can help. Getting an installment loan when you only have credit cards can also provide a boost.

• Provides flexibility – Having access to more credit gives you options in an emergency and chance to take advantage of lower rates through balance transfers.

Over a longer timeframe, say two years, the positive benefits typically outweigh any initial downsides of getting a new credit card.

Minimizing the Credit Score Impact

If you’ve decided a new credit card is right for your situation, there are steps you can take to reduce any temporary score drop:

• Only apply for cards you’re highly likely to be approved for based on your credit. Check your score and eligibility beforehand.

• Consider spacing out applications by 6-12 months to allow the effect of inquiries to fade.

• Make sure you can quickly pay off any large purchases to avoid increased utilization.

• Use the new card lightly at first – put a few smaller purchases on it that you can easily pay off each month.

• If you get approved for a big credit limit, ask the issuer if you can start with a lower one. This prevents excessive utilization.

• Follow good credit card habits – pay your balance on time and in full each month.

The Takeaway

Opening a new credit card causes an initial short-term drop in your credit score of just a few points. This is from the hard inquiry and impact on credit age and utilization. But the effect is minor and reversible. Within 6-12 months, it will be erased completely if you demonstrate responsible use of credit.

Getting a new account can also help build your credit mix and history over time. Just make sure your application and timing align with your larger credit goals. Understand the temporary impact, but don’t let it alone deter you from getting a new card that can offer value.