You may have heard that applying for a credit card can hurt your credit score. This is true to an extent. But like lots of widespread credit score advice, it doesn't quite give you the full story.
There are a few ways applying for credit cards can affect your credit, and while some can hurt your credit score, others can have a positive impact. Read on to learn why credit card applications are really nothing to worry about.
Does applying for a credit card hurt your credit score?
While applying for a credit card can hurt your credit score, it's unlikely to cause a big drop. For most consumers, a credit application will take less than five points off their FICO® Score (the most widely used type of credit score by lenders), according to myfico.com.
Not everybody sees their credit score go down after applying for a credit card, either. In fact, opening a new credit card could possibly increase your credit score.
It all depends on your credit profile and history. Everybody's credit profile is different, which also means the impact of a new credit application can be different from person to person. To better understand this, let's look at exactly how credit applications can affect your credit score.
How applying for a credit card can lower your credit score
Your credit score is calculated based on several scoring categories. When you open a new credit card, it has a negative impact on two categories:
- New credit: Includes how long it has been since you've opened a new credit account, your number of new credit accounts, and recent applications for credit. Makes up 10% of your FICO® Score.
- Length of credit history: Includes the age of your oldest credit account, the age of your newest credit account, and the average age of all your credit accounts. Makes up 15% of your FICO® Score.
Whether your application is approved or denied, applying for a card affects the new credit category. This is only a small factor in your credit score, though, and a single application won't have a large impact. But submitting several applications in a short time period can hurt your credit more.
If your application is approved, then you'll have a new credit card account. This will lower your average account age, which can also lower your credit score. The impact varies, but once again, it's usually nothing too significant.
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Getting approved for a credit card
Check credit score requirements before applying for a credit card. Some credit cards only approve people with excellent credit. Others are made especially for people with low or no credit. Here are our favorite credit cards organized by credit score requirements:
- Below 580: Best cards for poor credit
- 580-669: Best cards for fair credit
- 670-739: Best cards for good credit
- 740 or higher: Best cards for excellent credit
How applying for a credit card can improve your credit score
There are also two factors responsible for a much larger portion of your credit score:
- Payment history: Your record of on-time and missed payments. Makes up 35% of your FICO® Score.
- Credit utilization ratio: The amount you owe on your credit accounts compared to your combined credit limits. Makes up 30% of your FICO® Score.
If you're doing well in those categories, applying for a credit card should have little impact on your credit score. If your credit utilization is on the high side, a new credit card could even help your credit score.
Let's say you have one credit card with a balance of $5,000 and a credit limit of $10,000. Your credit utilization would be 50% and would likely be hurting your credit score. The rule of thumb is to keep credit utilization below 30%. If you open another card with a $10,000 credit limit, it would cut your credit utilization in half to 25%, and almost certainly raise your credit score.
How to improve your credit
If you're working on improving your credit, there are a few great ways to do it:
- Pay your bills on time and in full. Since your payment history is the biggest part of your credit score, on-time payments are very important. It's typically only on-time credit card and loan payments that raise your credit score, but it's still good to pay other bills on time, too.
- Don't use too much credit. The sweet spot is below 30% credit utilization. So, for each credit card you have, multiply the credit limit by 30%. Try to keep the balance below that amount at all times.
- Keep credit cards open. Older credit accounts are better for your credit score. While it's okay to cancel a card you don't want to keep every now and then, try to keep most of your cards open to build a lengthy account history.
Credit cards for building credit
The cards below are some of our favorite cards for building credit. For the full list, head to our guide: Best Starter Credit Cards for No Credit
As of Aug. 06, 2024
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Rating image, 5.00 out of 5 stars. 5.00/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. Rating image, 5.00 out of 5 stars. 5.00/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | Rating image, 4.25 out of 5 stars. 4.25/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. Rating image, 4.25 out of 5 stars. 4.25/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. |
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Credit Rating Requirement:Falling within this credit range does not guarantee approval by the issuer. An application must be submitted to the issuer for a potential approval decision. There are different types of credit scores and creditors use a variety of credit scores to make lending decisions. Recommended Credit Score required for this offer is: New/Rebuilding Under(579) Poor Fair Good Excellent 300-579 580-669 670-739 740-850 New/Rebuilding Under(579) | Credit Rating Requirement:Falling within this credit range does not guarantee approval by the issuer. An application must be submitted to the issuer for a potential approval decision. There are different types of credit scores and creditors use a variety of credit scores to make lending decisions. Recommended Credit Score required for this offer is: Fair/New to Credit Under(669) Poor Fair Good Excellent 300-579 580-669 670-739 740-850 Fair/New to Credit Under(669) |
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Why does applying for a credit card affect your credit score?
When you apply for a credit card, the card issuer reviews your credit history. This puts what's called a "hard credit inquiry" on your credit file. Hard inquiries affect the new credit category that makes up 10% of your FICO® Score.
New credit matters because there's a correlation between your number of credit applications and your risk of defaulting on debts. FICO has found that consumers with at least six hard inquiries on their credit reports are up to eight times as likely to declare bankruptcy as consumers with zero inquiries.
A credit inquiry is a request for information on a consumer's credit file. There are two types: hard inquiries and soft inquiries, also known as hard and soft credit checks.
Hard inquiries
A hard credit inquiry is triggered by a credit application. Examples include credit cards, mortgages, auto loans, and personal loans. There are also other situations, including applying to rent an apartment and requesting a credit limit increase, that can sometimes trigger a hard credit inquiry. You must give your permission for any party to perform a hard inquiry.
This type of inquiry affects your credit score. It's not a large impact -- for most consumers, fewer than five points. However, multiple inquiries can bring your credit score down more.
Hard inquiries stay on your credit file for two years, but only affect your FICO® Score for one year.
Soft inquiries
A soft credit inquiry doesn't affect your credit score. This type of inquiry doesn't provide as much information as a hard inquiry, and creditors don't need your permission to perform a soft inquiry.
While there are many potential reasons for a soft inquiry, here are some examples:
- You use a prequalification tool to see what kind of credit cards or loan rates you qualify for.
- You pull up your credit score with a free credit score service.
- A potential employer checks your credit.
- A credit card company checks your credit in order to send you a preapproved credit card offer.
LEARN MORE: What's the Difference Between Hard and Soft Credit Checks?
For more information, watch the video below.
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How much does your credit score go down when you apply for a credit card?
Your credit score will normally go down by fewer than five points when you apply for a credit card.
FICO reports that for most people, one credit inquiry takes off fewer than five points under its credit scoring system. The impact can vary based on your own unique credit history.
The results of a hard inquiry can be different under other credit scoring systems. FICO® Score is the type of credit score that's used by most top lenders.
Does getting denied for a credit card hurt your credit score?
No, getting denied for a credit card doesn't hurt your credit score.
Your credit score will drop a small amount because of the credit application. However, this is something that happens with any new credit application because of the hard inquiry it puts on your credit file. It occurs regardless of whether the card issuer approves or denies your application.
What to know before you open a credit card
Your credit score will probably go down a bit from opening a credit card, but there's no reason to let that stop you. When used well, a new card can improve your credit and help you qualify for lower interest rates on mortgages, auto loans, and any other financing you may need. The best credit cards also include plenty of valuable benefits that easily outweigh a small, temporary credit score drop.
Want to boost your credit card knowledge before getting a new card? Check out How Credit Cards Work: A Beginner's Guide.
Still have questions?
Here are some other questions we've answered:
- Does Maxing Out a Credit Card Hurt Your Credit Score?
- If I Pay Off a Credit Card, Will My Credit Score Change?
- How to Rebuild Your Credit
FAQs
Most people's credit scores go down less than five points after applying for a credit card. The impact varies depending on your credit profile and other factors, but it normally doesn't hurt your credit score that much.
Getting denied on a credit card application doesn't hurt your credit. A credit card application can lower your credit score by a small amount, but this happens whether the application is approved or denied.
Five credit cards isn't too many, but it's more than what's needed or recommended for most consumers. It's a good idea to have one or two credit cards to pay for purchases and build credit.
Some people like to open more credit cards to get additional benefits, such as multiple welcome offers and bonus rewards across more spending categories. While this can work out well, it requires more discipline to manage several credit cards and stay out of debt.
As a rule of thumb, it's recommended to wait six months to a year before getting a new credit card. You can apply for credit cards more frequently if you want. Just make sure you don't open more cards than you can comfortably manage.
