When you apply for a new credit card, the card provider performs a hard credit check, which can decrease your credit score by a few points. However, with regular payments, new credit can improve your credit mix and utilization and increase your score over time.
There are two main ways applying for a new credit card can negatively impact your credit score.
A hard credit check can decrease your score between five to 10 points. This decrease is temporary and typically only impacts your credit score for up to 12 months. Your score usually bounces back quickly, provided your credit history remains positive. However, a hard credit check remains on your credit report for up to two years.
Applying for a new credit card can help your credit score in the long run, as it can improve these credit score factors:
There are two types of credit accounts: installments and revolving. Installment accounts have fixed payments with an end date, like a mortgage or car loan. Revolving accounts do not have an end date but usually have a minimum payment due each month. Credit cards are revolving accounts.
Your credit mix makes up 10% of your FICO credit score. Credit bureaus like to see a mix of both types of accounts, as it indicates you can effectively manage different kinds of credit.
If you primarily have installment accounts on your report, adding a new credit card can help your credit mix and potentially increase your credit score.
Your payment history is the most important factor on your credit report, accounting for 35% of your FICO credit score. It shows how many payments you’ve made on time, how often you miss payments and the number of days you’re past due on a payment.
With regular, on-time payments, a new credit card can help demonstrate you can manage your credit well. Paying your bills on time is one of the best ways to improve your credit score.
Your credit utilization ratio represents how much of your total available credit you’re currently using. Credit bureaus typically reward a credit utilization ratio of under 30%.
Applying for a new credit card can increase your total credit limit and lower your utilization ratio.
For example, if you’ve charged $500 to your credit card and your total credit limit is $1,000, then you’re using 50% of your credit utilization. But if you open a new credit card with a $1,000 limit, then your total credit limit becomes $2,000, and your credit utilization becomes 25%.
While it’s up to the card provider to decide if you’re eligible for a new card, there are a few things you can do to improve your chances.
When you open a new credit card, expect a small, temporary drop in your credit score. However, your score should bounce back within a few months, especially if you make on-time payments and keep your credit utilization low.
Before you apply, check your credit score to better understand what sorts of cards best match your credit history.
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