Thinking about opening a new credit card and wondering how much it will affect your credit score? Show
In the short term, opening a new credit card is likely to hurt your credit score a little bit, as it adds a hard inquiry to your credit reports and reduces your average age of accounts. However, in the long run, opening a new credit card can help improve your credit score by boosting the amount of available credit you have, while also reporting your account and payment history to the three major consumer credit bureaus. We explain how to protect your credit score as you use the new card. In this article:
How does opening a new credit card hurt your credit score?When you apply for new credit, this generates a hard inquiry when the lender pulls your credit report from one or more of the three major consumer credit bureaus (Equifax, Experian and TransUnion) to review your creditworthiness. A hard inquiry typically drops your credit score about 5 to 10 points, and will stay on your credit reports for two years. However, the negative impact on your credit score ends after just one year. Opening a new credit card can also hurt your credit score by reducing your average age of accounts. Length of credit history makes up 15% of your FICO Score, the scoring model typically used by lenders when deciding whether to extend you credit, and the average age of accounts is part of that factor. For this reason, it’s best to apply for new credit sparingly, allowing the accounts you have to age — the longer your credit history, the more positive it reflects on your credit score. That’s also why it’s important to be judicious when closing old card accounts: Personal finance experts advise to keep old card accounts open and active, as long as it’s not costing you to keep an old card open (such as charging an annual fee). How does opening a new credit card help your credit score?The primary way that opening a new credit card may improve your credit score is by improving your utilization ratio, which is the technical term for how much of your available credit you’re using. Credit utilization is also referred to as “amounts owed” and is the second most important factor (after payment history) of your credit score. For example, if you have a credit card with a $1,000 credit limit with a $300 balance, that’s 30% utilization. A good rule of thumb is to keep utilization at or under 30%, so a $300 balance is right at the cusp in this example. If you open a new card that gives you another $1,000 credit limit, that reduces your overall utilization to 15% ($300/$2,000 = 15%). Note that utilization is calculated both per individual accounts and across all your accounts. Paying off your card or cards in full as often as possible (for instance, at the end of every week) can help ensure your issuer reports a low utilization to the credit bureaus. So opening a new credit score gives you more available credit overall, meaning if you don’t increase your spending, your utilization ratio should decrease. Also, if you’re opening your first credit card, this can help your credit score by expanding your credit mix, which makes up 10% of your FICO Score. Note that credit mix does not mean how many credit cards you have from different issuers; rather, it means different types of accounts, such as credit cards and loans (like an auto loan or mortgage). How many credit cards is too many?Having at least one credit card is a good thing because it can help you build credit. But how many credit cards should you have? There’s no one-size-fits-all answer. For some consumers, one credit card is enough as long as it reports payment activity to the three credit bureaus. Other consumers may use two, three or even more credit cards to earn rewards in different spending categories. Just be sure that however many credit cards you use, you can still keep track of your payment due dates. Some issuers allow you to request the due date of your preference, which means you might be able to arrange it so all your cards have the same due date. You could also set up email or text message alerts for when a due date is approaching, or activate autopay so at least the minimum payment is made automatically — on-time payments are the most important factor of your credit score. How to build credit and keep a good credit scoreThese are the five factors that make up your FICO Score: Bearing these factors in mind, here are some tips for how to build and keep a good credit score:
Important credit card terms for new cardholders to knowIf you’re new to credit, you’ll want to make sure you understand the relevant terminology:
Frequently asked questionsHow long will it take for my new credit card to arrive? It typically takes seven to 10 business days to receive your physical credit card in the mail, though some issuers offer expedited delivery that may have a fee. Can I use my credit card before it comes in the mail? Some issuers may provide you with an instant credit card number, allowing you to use it for online purchases or with a digital wallet before your physical card arrives. Should I close old credit card accounts? The short answer is “it depends.” When you close a credit card and the account was in good standing, it’ll stay on your credit reports for 10 years, so you don’t lose that positive history right away. However, you will lose that line of credit, meaning your utilization ratio could increase if you’re carrying a balance on any other cards. Will carrying a balance help me build credit? No, this is a myth. As long as you’re using your credit card, paying on time and keeping utilization low, you’ll build credit — no need to carry a balance. Does checking my credit score hurt my credit? No, checking your credit score doesn’t impact your credit at all. You can check your credit score for free and monitor your progress as you work to build and keep a good score. How many points does a new credit card raise your score?Rossman notes that when people open a new credit card, doing so essentially lowers the average age of their credit accounts. “I would say for most people, the total impact is probably not going to be more than 10 to 20 points and probably shouldn't linger more than like three to six months,” says Rossman.
How long after new credit card will score go up?You can expect to wait at least six months for a FICO score after opening your first credit card. However, with new tools like Experian Go and Experian Boost, “We're able to capture those positive payments going back up to 24 months” to generate a credit score instantly, Griffin notes.
Does getting a new credit card make your credit score go down?Applying for a new credit card can trigger a hard inquiry, which involves a lender looking at your credit reports. According to credit-scoring company FICO®, hard inquiries can cause a slight drop in your credit scores. Keep in mind: Hard inquiries usually stay on your credit reports for two years.
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