One of the most common questions that I get, right after “Which credit card should I get?” is:
In this article
How Does Opening a New Credit Card Affect Your Credit Score?
Understandable question! Nobody wants to hurt their credit score.
The short answer?
Opening one new credit card will barely affect your credit score at all. It is likely to drop 5-7 points for a short period of time because of the “hard inquiry” performed by the issuer in checking your credit – and then it will most likely recover to where it was before.
The long answer?
There are a number of factors that affect your credit score. Read on….
Factors that Affect your Credit Score
Payment History is number one at 35% of your credit score
Opening a new card will not affect that.
Your total credit utilization
This means that if you have $50,000 in total credit lines and you have a $5,000 balance, you are utilizing 10% of your credit line. I recommend staying under 20% of your total available credit across all cards and also on any one particular card. Maxing out a line on any card will imply to that issuer that you may be a credit risk. In this case, a new card can help your credit score, because the new line of credit should lower your overall utilization. Interesting, right?
How long have you had credit?
This is another one that a new card won’t impact. In fact, it’s why I advise people to *never ever* close their oldest credit card. Let’s say you had a card in 1990 and next got one in 2009. One day you think to yourself you don’t use that one from 1990 anymore and you close it. Whoops! You just decreased your total age of credit by 19 years! THAT will hurt your score.
Lots of recent hard inquiries and new accounts
If you were to put the pedal to the metal on new credit cards, then yes, that could hurt your score. Card after card after card in a short amount of time makes it look like you need credit, even if you just want new sources of credit card rewards points. So take it slow and steady. A slow build up of new accounts generally will have very little.
Keep in mind…
…that while Business Credit Cards will still result in a “Hard Pull” on your credit, they do not report to your personal credit report - unless they are issued by Capital One or Discover. Those issuers both report business credit cards to personal credit reports. For this reason, if you are doing heavy business spend, it is best to not use a Capital One or Discover business credit card as that can potentially hurt your credit score via an increased utilization percentage. If you must use a Capital One or Discover business credit card, consider paying those bills partially or fully before the statement close date so it doesn’t all hit your personal credit file.
But if you have a $25,000 line on a Chase business credit card, for example, and spend $20,000 a month on it, that would have no effect on your personal credit score because Chase doesn’t report that to your personal credit file. So that would be a much easier way to spend for your small business.
I was getting approved for all the credit cards I want and now I’m getting rejected. What do I do?
You probably went at your newfound miles and points hobby a bit too fast. Slow it down, take a few months off from new cards, and wade back in later – slowly.
In short, the answer to the question of “Will opening a credit card hurt my credit?” is somewhere between “no” to “a tiny amount for a very short time.”
That doesn’t mean you shouldn’t keep an eye on your score. You should! Both to see if you are going too fast and also to make sure there are no errors. And of course, if you will be buying a house, definitely keep an eye on your score to make sure you stay “prime” for that home loan. A score of at least over 750 should nab you the best mortgage. Above that is gravy but if you are borderline and close to needing that loan, that would be the one time I’d say to take a pause on new credit cards until after you’ve secured that loan – just in case.
Questions?
Let me know here, on Twitter, or in the private MilesTalk Facebook group.
You can find credit cards that best match your spending habits and bonus categories at Your Best Credit Cards.
New to all of this? My “introduction to miles and points” book, MilesTalk: Live Your Wildest Travel Dreams Using Miles and Points is available on Amazon and at major booksellers.
