Before you hit “send” on that credit card application, find out: Does opening a credit card affect your credit score?
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If your mailbox looks anything like mine, it’s a mess!
Filled with coupon books, advertisem*nts and several credit card offers each week.
Many of the offers can seem very enticing: Miles, points and cash back, to name a few. But those benefits aside, there’s an important question to ask:
Does opening a credit card affect your credit score?
Your credit score is comprised of several metrics. These include how much of your available credit you use, and how often you make your payments on time.
Before you apply for a new credit card, take into consideration the following credit score factors that application may affect.
How Often you Apply for Credit
This metric is measured in “hard inquiries”.
That’s each time a potential lender pulls your credit. They fall off your credit report after two years.
To maintain a healthy credit score, you should aim to keep this number on the low side.
More than 4 inquiries within a short period of time is often considered a greater predictor of risk.
More than 4 credit inquiries within a short period of time is often considered a greater predictor of risk. Click To Tweet
Recommendations
Space out your credit applications.
According to myFICO, generally speaking, each hard inquiry can result in up to 5 points being deducted from your score.
However, if you’re just starting to build up your credit, or you only have a few accounts, your credit score may be ducked for even more points than that for each inquiry!
Not sure about how many inquiries you’ve already logged in the past two years?
Be sure to check your credit score first before you send in that application. I personally like checking my score through myFICO.
If you’re close to an inquiry falling off your credit, you may be better off waiting a month or two prior to applying for credit again.
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The Age of Your Credit
One of the factors that affect your credit score is how “old” your credit history is.
This is why it’s important that you keep your credit accounts open even if you’ve paid them off.
This metric can be a biggie!
It may be responsible for up to 15% of your entire credit score calculation, according to myFICO.
For the credit score models to determine the age of your credit, they will mostly look at the average length of your credit history.
Here’s an example:
You have two open accounts. One is 8 years old and the other one is two years old.
The age of your credit is then calculated as 5 years old. This is the average of those two accounts.
According to CreditKarma, a healthy credit history age is over 7 years old:
Recommendations
If the current age of your credit is newer than that, or if you’re approaching a lower age bucket (say you’re at an average of 7.1 years), you might want to consider holding off on applying for a new credit line.
To a lesser extent, opening a new credit card could also negatively impact your credit score if the majority of your open accounts are also credit cards.
This could be harmful to the credit mix factor.
This looks at what type of accounts you have had experience with.
It considers credit and retail (such as department store) accounts, mortgages and installment loans.
Want a more in-depth look at each of the factors that make up your credit score and how to improve each?
Be sure to download my free Quick Start Guide to Improving Your Credit Score. In it, you’ll learn more about what goes into calculating your credit score and how to improve each factor.
If your credit score has already suffered some damage and you wish to get help from the experts to fix it, check out the Credit Assistance Network.
They are a highly rated and reputable company that can help you improve your credit, no matter the condition!
Learn more about the Credit Assistance Network here.
Is a New Credit Card Ever a Good Idea?
Depends on your situation.
Say the minimum monthly payments on your current credit cards are sucking the life out of you.
Or that the interest rates on your cards are really high and are preventing you from making any real progress paying down your debt.
In that case, you may want to consider opening a card that would allow you to transfer the balance at 0% interest.
Most times, these are only introductory rates and may have some restrictions or fees, so read the fine print!
Here’s an article from NerdWallet that compares some 0% interest credit cards.
These may provide you some relief so you can truly start to make a dent on the principal of your debt during those interest-free months.
Additionally, a new credit card may help you improve your credit utilization.
A new credit card may help you improve your credit utilization, which accounts for up to 35% of your credit scoreClick To Tweet
This counts for about 30% of your entire credit score.
This factor calculates how much credit you have used versus the credit you have available.
By increasing the amount of credit you have available, this metric will look better to credit scoring models.
Before you apply for any card though, I recommend that you check your credit score.
This will give you a better idea of where you currently stand. Also, if applying for a new card could hurt your score.
By checking your credit score, you can have a better idea of what your starting point is, and whether or not a new credit application could negatively impact your credit score.
Lastly, I recommend that before you apply, if possible, ask the lender what range of credit scores they accept.
That way, you can determine how good of an approval chance you have for a certain credit card before actually applying.
This limits you risking getting a new hard inquiry only to be turned down.
Final Thoughts
So does opening a credit card affect your credit score? In answering this question, we have to weigh the pros and cons.
A new credit card that offers you better terms, interest rate, or perks, than your current one, could save you money and give you other benefits.
However, by considering also how that application could impact your credit score, you can minimize any negative consequences that a new credit card could have.
Do you have a credit improvement success story? Share it in the comments below!
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