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Opening, or simply applying for, a new credit card can temporarily ding your credit score. However, obtaining a new card can also have some positive effects on your credit, like increasing your credit limit. Here’s what to know.
The short answer is: maybe. It depends.
Long-term credit score improvement can be achieved through responsible credit card use, even though applying for a new card may temporarily lower your score. Let’s dive into the details.
The Impact of Hard Inquiries
When you apply for a new credit card, the lender will typically perform a “hard inquiry” on your credit report. This inquiry stays on your report for one to two years and can temporarily lower your credit score by a few points. However, the impact of a hard inquiry is usually minimal and shouldn’t be a major concern if you’re only applying for one or two new cards.
Building Your Credit History
One of the most important factors in your credit score is your credit history. This includes the length of your credit history, the types of credit you have, and how well you’ve managed your credit accounts. Applying for a new credit card and using it responsibly can help you build a longer and more diverse credit history, which can ultimately boost your credit score.
Lowering Your Credit Utilization
Your credit utilization ratio is the amount of credit you’re using compared to your total available credit. Ideally, you want to keep your credit utilization below 30%. Applying for a new credit card and using it responsibly can help you lower your credit utilization ratio, which can also improve your credit score.
The Bottom Line
Applying for a new credit card doesn’t automatically hurt your credit score. If you use the card sensibly, it can actually improve your credit score over time. It’s crucial to consider the possible consequences of hard inquiries, though, and to only apply for new credit cards that you can afford to pay back on time.
Frequently Asked Questions (FAQs)
Will applying for a credit card hurt my credit score?
As previously indicated, the hard inquiry associated with applying for a credit card may cause your credit score to drop temporarily. But if you’re only applying for one or two new cards, the effect is typically negligible and shouldn’t be a big deal.
How long does a hard inquiry stay on my credit report?
A hard inquiry stays on your credit report for one to two years. However, its impact on your credit score typically fades within a few months.
How can I improve my credit score?
There are many things you can do to improve your credit score, including:
- Paying your bills on time
- Keeping your credit utilization ratio low
- Building a longer credit history
- Having a mix of credit accounts
- Avoiding closing old credit accounts
Additional Resources
- NerdWallet: Does Applying for a Credit Card Hurt My Credit Score?
- Forbes Advisor: Does Applying For A Credit Card Hurt Your Credit?
Applying for a credit card can be a great way to build your credit score and earn rewards. However, it’s important to be mindful of the potential impact on your credit score and to only apply for new credit cards that you can afford to manage responsibly. By following the tips above, you can make sure that applying for a new credit card helps your credit score, not hurts it.
Does opening a new credit card hurt your credit?
Your credit score may decrease slightly if you apply for a new card, but it may decrease more if you open a new card and use that line of credit heavily. If you only have one or two cards that are a few years old, getting a new card can also hurt your score because it will lower the average age of your credit.
Here’s how opening a new card might hurt your credit:
It can lead to higher balances
If you make a large purchase with a new credit card or if you get a balance-transfer card and move your higher-interest debt onto it, you run the risk of having a high credit utilization score. The amount of your credit limit that you use is weighted heavily. Credit utilization is calculated both per-card and overall.
Experts recommend going no higher than 30% on any card, and lower is better.
However, it’s smart to look at overall finances, not just your credit score. Accepting a decline in your score because of high credit utilization because you have a balance transfer card deal to pay off debt may be worthwhile.