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Does Applying for a Credit Card Hurt Your Credit?

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Applying for a credit card can impact your credit score, especially if you apply for multiple cards in a short period. Also, opening a new account can have an effect on your credit score. However, if you use your credit wisely, your score will eventually go up.

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 applying for a credit card can affect your credit score and how to do it correctly.

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.

If you get too many hard inquiries in a short amount of time, it can hurt your credit scores. This is because you might look like you need new credit badly, 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

Your credit score will probably drop by a small amount, about five points at most, when you apply for a credit card. This is called a “hard inquiry.” 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:

  • Length of credit history: The new account will make your average credit account age shorter, which could have a small effect on 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.

  • You should only get a new card every six 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.

does applying for a credit card hurt your credit

Does Applying for a Credit Card Hurt Your Credit?

This is what credit card companies do when you apply for one. They will usually do 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® ScoreΘ and 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. You might even get an offer in the mail from some credit card companies if they do a “soft inquiry.”

Does Being Denied a Credit Card Hurt Your Credit Score?

If you apply for a credit card and get denied, theres no additional impact on your credit score beyond the initial hard inquiry.

Still, it’s a good idea to make sure you’re only looking at credit cards that are a good fit for your credit profile because having multiple hard inquiries in a short amount of time can hurt your score more.

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.

Does Opening a New Credit Card Hurt Your Credit Score?

FAQ

How much does your credit score drop when you apply for a credit card?

Applying for a new credit card typically causes a small, temporary drop in your credit score, usually by a few points.

Does applying for a credit card ruin credit?

Applying for a new credit card also triggers a hard inquiry, which involves a lender looking at your credit reports. According to credit-scoring company FICO®, a hard inquiry can cause a slight drop in your credit scores. Multiple hard inquiries in a short period of time can have a more pronounced impact. Dec 10, 2024.

What is the 2/3/4 rule for credit cards?

The 2/3/4 rule is a credit card application restriction specifically used by Bank of America. It limits the number of new credit cards you can be approved for within certain timeframes.

How much does a credit application affect your credit score?

In general, credit inquiries have a small impact on your FICO Scores. For most people, one additional credit inquiry will take less than five points off their FICO Scores. For perspective, the full range for FICO Scores is 300-850. Inquiries can have a greater impact if you have few accounts or a short credit history.

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