How Applying for a New Credit Card Affects Your Credit

TORONTO, December 11, 2020 (Newswire.com) - Before you start applying for new credit cards, you should be aware of the possible consequences it can have on your credit score. Each time you apply, a lender examines your credit, which can hurt your score. Here, we’ll focus on how applying for and using a new credit card impacts your credit, and how you can decrease credit inquiries.

Why applying for a credit card can hurt your credit

Applying for a new credit card can temporarily ding your credit score since it results in a hard pull on your account. A hard pull, or hard inquiry, is when a creditor looks at your credit to see if you pose any risk as a borrower. Hard pulls stay on your credit report for about two years, but the drop in your score will only last one year.

Hard pulls vs. soft pulls

A soft pull doesn’t damage your score since they aren’t connected to a specific credit application. Soft inquiries happen in a number of situations, such as when you check your own credit account or when a business checks your credit for prequalification.

Will applying for multiple new cards hurt my credit more?

Yes, while one hard inquiry results in about a five point drop in your score, applying for multiple new cards in a short amount of time will both hurt your score more and make you appear risky to lenders. For example, if you apply for several new credit cards and apply for a mortgage at the same time, it can look like you’re financially overextending yourself.  

How having a new card can affect your credit score

Your credit score is made up of the following:

1. Payment history (35%)
2. Amounts owed (30%)
3. Length of credit history (15%)
4. New credit (10%)
5. Credit mix (10%)

A new credit card lowers the length of your credit history and can either have a positive or negative effect on your amounts owed, aka your credit utilization rate.  Your credit utilization rate is the ratio of how much credit you’re using to the total amount of credit available (below 30% is ideal). A new card can raise the total amount of credit available, thereby helping your score. However, if you make big purchases right away, it can negatively affect your score.

How to decrease new credit inquiries 

To reduce new credit inquiries, look into prequalifying. Prequalification results in a soft credit inquiry and lets you confirm whether you’ll qualify for a card without hurting your credit score. However, prequalifying doesn’t guarantee that you’ll get approved. You’ll still need to submit a formal application and be subject to a hard pull to apply for a credit card.

Source: iQuanti, Inc.