Does Getting A New Credit Card Affect Credit Score?

Introduction In fact, most people have the impression that getting a new credit card is a great thing – a new line of credit, additional rewards programs and promotions, and other bonuses that come with a new account. However, one question that often comes up is: Does a new credit card application impact your credit rating? The answer is yes, however, the impact may be positive or negative based on the individual credit profile of the applicant and their ability to handle the new account responsibly. In this article, you’ll learn what happens to your credit score when you apply for a new credit card and how you can influence it positively.

The Short-Term Impact However, when you apply for a new credit card and are immediately approved, this may have a slightly negative effect on your credit score. There are a few reasons why.

First, when some lender checks your credit application for a new card through a hard inquiry they will be reflected on your credit report. Multiple hard inquiries within a short period affect lenders and can reduce your score by a few points. More so, inquiries have a decreasing effect over time and a single inquiry alone is unlikely to bring down your score significantly.

Moreover, attempts to reduce the average age of your credit accounts can also slightly affect the score. Suppose you’re one of the few who have had one credit card open for 10 years – by creating a brand new credit card account, you have effectively just reduced your average length of credit history, something that can slightly drag down your score.

The good news is that both of these factors are rarely permanent and your score will most likely go up within a few months of proper utilization of the credit card.

The Long-Term Impact Although the registration of a new credit card may slightly decrease your score, the balance can post a positive score in the long run. That is if you pay balances on time and make sure the credit utilization rate is low when utilizing the new credit card. There are a few key ways that getting a new card can help boost your credit over time.

• It expands your total available credit: From a credit scoring standpoint, the utilization of the available credit limit against the balance that you currently have is highly significant. The higher the credit limit one has in comparison to the owed balances then the better it is in terms of utilization ratio and credit score. Thus, by obtaining and using a new credit card correctly, you increase the total credit limit without increasing the overall amount of debt, which positively affects the credit score.
• It diversifies your credit mix: Credit scoring models prefer customers who have not only long credit history but experience in the utilization of credit cards and other loans such as installment credits. When you apply for a new credit card, you show the capacity to maintain revolving credit responsibly.
• It builds your payment history: A key area that determines credit scoring is one’s ability to pay back loans on the agreed time and date. When opening a new account, you get an excellent opportunity to make more on-time payments that reflect creditworthiness and responsibility in the long run. Always sign up for autopay so that you are not a victim of a default payment notice at any one point.
• It extends the length of credit history: In a previous section, it was noted that credit scorers prefer long credit histories. Although acquiring a new credit card decreases the average credit card age in the short term, using that card for many more years will increase the overall credit history.

Guidelines for Avoiding Credit Score Deterioration

If you want to open a new credit card but are worried about negative credit impacts, there are a few things you can do to minimize potential damage.

• Stick to light shopping: It means only those credit card applications that contain full information, which causes a soft credit check rather than a hard check that may harm scores. It is also important not to compare rates on too many lenders as this incurs hard inquiries.
• Fortify your report first: One must pay some extra money for a few months when applying for new credit. To manage the utilization before adding an account, it is recommended to keep balances such as credit cards and loans below 30 percent of the limit.
• Ask for credit line increases: Ensure that you ask for higher credit limits on the current revolving accounts before making your applications. Higher existing limits also assist in offsetting the effects of new limits on your utilization.
• Choose your timing: Do not open an account unless your credit profile is in its best shape of course. Give some time for your score to recover from the problems faced earlier before you apply for new credit. Also, set accounts to age for a while before pursuing more.
• Stick to the plan: After getting approval on the new card charge for it responsibly to create a good history. It is necessary to pay in time, to keep credit utilization rates low, and to let the credit history remain positive to have positive effects in the future.
• Close new accounts cautiously: If you applied for a card that was not beneficial to you, avoid the temptation of closing the account as soon as you get a new one. Young closed accounts are more detrimental to the score than accounts that are just maturing. Use it only occasionally but leave it unlocked.
• Monitor your score routinely: Check your scores on all three major bureaus at least once a month or two. Finally, determine any variations that may be related to the effects arising from your new credit card. Any discrepancies should be disputed on the reports.

The Bottom Line In conclusion, having a new credit card is not necessarily a bad thing if you are disciplined enough to pay your statement balance in full every month. Take care not to have too many hard inquiries, which may occur if you apply to numerous credit cards. Applying for credit at the right time when your credit profile is good is very important. Most important of all, one can improve those scores slowly but surely through continued responsible use of the added revolving credit. Powers of new plastic: The new plastic credit powers, if treated responsibly, can have a positive credit impact.

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