- If used responsibly, credit cards can have a positive impact on your credit score in the long term.
- The two biggest factors that determine your credit score are payment history and credit utilization.
- Looking to build credit? Consider the options for the best first credit card.
Understanding the impact of credit card applications on your credit score
How hard inquiries affect credit scores
When you apply for a credit card, the lender performs a hard inquiry on your credit report to assess your creditworthiness. This hard inquiry can temporarily lower your credit score by a few points.
Note that applying for any type of credit card will ding your score in the short term; a business credit card affects your credit just like applying for a personal credit card.
Difference between hard and soft inquiries
Hard inquiries occur when you apply for credit, temporarily lowering your score. Soft inquiries are credit checks that don't affect your score –— they happen when you check your own credit or when a lender pre-qualifies you for an offer.
Credit score recovery timeline after applying for a card
The impact of applying for a credit card is usually minor and relatively short-lived, though the inquiry will remain on your credit report for two years. If you apply multiple times within a short period, this can compound the effect and signal to lenders that you may be a higher credit risk.
Factors that influence the impact of a credit card application
Several factors influence the calculation of your credit score, and these also affect how much your credit card application will impact it.
Credit history length and number of applications
Applying for a new credit card will likely have a smaller impact on your score if your credit history is long and don't apply for new credit very often. On the contrary, if you have a short credit history or have multiple recent applications on your credit file, an additional application can have a more noticeable effect on your score.
Overall credit utilization and credit mix
High credit utilization can negatively affect your credit score. Obtaining a new credit card increases your available credit, which, in effect, lowers your credit utilization and could boost your score. Similarly, a new credit card can improve your credit profile by improving your credit mix, which is another important factor in your credit score.
Recent hard inquiries and credit score sensitivity
Recent multiple hard inquiries can negatively impact your credit score, especially if you have a short or limited credit history. Therefore, it's wise to create a strategy for applying for new credit cards.
Tips to minimize the impact on your credit score
Responsible credit card usage can positively affect your credit score.
Planning credit applications strategically
It's important to understand each bank's various credit card application rules, as those will affect when and how often you can apply for credit cards from each issuer.
To minimize the negative impact of credit card applications, it's also wise to research cards ahead of time and stick to those you're more likely to qualify for. Also, limit the number of applications you submit within a short timeframe to avoid multiple hard inquiries.
If you can improve other aspects of your credit profile, like paying down existing debt, you can help offset the small dip caused by a new application.
Maintaining a healthy credit mix
Adding a credit card to your financial portfolio can diversify your types of credit, which is a factor in credit scoring models. This diversification can positively impact your score, assuming you manage the credit card well.
When applying for a credit card might be beneficial
Applying for a credit card can be a smart move if doing so supports your financial goals, such as building credit, accessing credit card rewards, or improving your credit profile.
Building credit responsibly
Knowing your credit score and reviewing your free credit report will help you identify credit cards that match your creditworthiness. This will also help you reduce the chances of your application being denied.
Additionally, many credit card issuers provide information on the credit scores needed for approval. Look for credit card pre-approval or pre-qualification offers that do not involve a hard inquiry to gauge your chances without affecting your score.
Using a credit card responsibly helps build a positive credit history. Paying your bills on time and keeping your balances low or zero shows lenders you can effectively manage your credit.
Gaining access to better rewards and perks
Many credit cards have rewards programs that offer cash back or miles and points. Some cards also offer perks like purchase protection, extended warranties, or credit card travel insurance. These credit card benefits can help you save money if used wisely.
Enhancing credit mix for long-term benefits
Adding a credit card can diversify your credit mix, and credit mix is one of the factors considered in your credit score. A balanced mix of credit types shows lenders that you can manage various forms of credit, which may help improve your score over time.
FAQs about how credit cards affect your credit score
How much does a hard inquiry affect my credit score?
A hard inquiry will affect your credit score slightly in the short term. It might temporarily lower your credit score by 5 to 10 points. The exact impact varies based on your overall credit history.
Will multiple applications in a short period impact my credit score more?
Yes, multiple credit card applications in a short period of time will impact your credit score. Applying for multiple credit cards in a short period can signal financial distress to lenders and may have a negative cumulative impact on your credit score.
How long does it take for my credit score to recover after applying?
The impact of a hard inquiry typically lasts for about 12 months, though the inquiry itself will remain on your credit report for two years.
Does getting denied for a credit card hurt your credit score?
No, a credit card denial itself doesn't hurt your credit score, but the hard inquiry made during the application process can have a temporary negative effect.
Are there ways to apply for a credit card without impacting my score?
Yes, it's possible to apply for a credit card without impacting your score. Some credit card issuers offer pre-qualification or pre-approval options. These will only result in a soft inquiry on your credit report –– which doesn't impact your score.
What is the difference between a soft and a hard inquiry?
The difference between a soft and hard inquiry is whether or not the inquiry affects your credit score. Some lenders use soft inquiries for pre-qualification purposes. On the other hand, a hard inquiry occurs when you apply for new credit, and your score is temporarily lowered because of new credit activity on your credit file.
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