Getting a new credit card can have an impact on your credit score, but how much it affects your score depends on several factors. Your credit score is calculated based on the information in your credit reports, so any changes to your credit accounts get reflected in your score.
What is a credit score?
A credit score is a three-digit number that lenders use to assess your creditworthiness for loans and credit cards. It’s calculated based on the information in your credit reports from the three major credit bureaus – Experian, Equifax and TransUnion. The most commonly used credit score model is FICO® Score.
FICO® Scores range from 300 to 850, with higher scores indicating lower credit risk. A score above 700 is generally considered good, while a score below 580 is poor. The five main factors that affect your FICO® Score are:
- Payment history (35% of score)
- Amounts owed (30%)
- Length of credit history (15%)
- New credit (10%)
- Credit mix (10%)
As you can see, new credit accounts for 10% of your overall FICO® Score. So getting a new credit card will impact your score, but not as much as your payment history and credit utilization.
How does getting a new credit card immediately affect your credit score?
When you open a new credit card, it can lower your credit score in the short term. Here are some of the ways it impacts your score:
1. Lowers average age of accounts
Length of credit history accounts for 15% of your FICO® Score. When you open a new credit card, it lowers the average age of your credit accounts. This has a mild negative impact on your score.
2. Generates a hard inquiry
When you apply for a new credit card, the issuer does a hard pull on your credit report to review your application. This hard inquiry can lower your credit score by a few points initially.
3. Decreases credit mix
If you already have several credit cards, getting an additional card can decrease your overall credit mix. Lenders like to see a healthy mix of credit cards, installment loans, mortgages, etc. Having too many cards negatively impacts your score.
4. Lowers average account age
The new credit card will initially have a $0 balance and 0 months of account history. This will lower your average account age and balance across all accounts, negatively affecting your credit score.
Overall, a new credit card can lower your credit score by 5 to 10 points initially. However, the impact is usually temporary as long as you use the card responsibly.
How does a new credit card affect your credit score in the long run?
While a new credit card causes a small, immediate drop in your score, the long-term impact on your credit score can be positive or negative depending on how you use the card.
Positive impacts
Here are some ways that getting a new credit card can improve your credit score over time:
- Increases total available credit – Having a higher total credit limit across all cards lowers your credit utilization ratio, which positively impacts your score.
- Builds credit history – Making on-time payments builds positive payment history. Long-term responsible use establishes length of credit history.
- Improves credit mix – Having different types of credit (revolving, installment, mortgage) improves your credit mix.
Negative impacts
On the other hand, irresponsible use of a new credit card can hurt your credit score in the long run by:
- Increasing credit utilization – Maxing out cards increases your credit utilization, lowering your score.
- Missing payments – Late or missed payments lead to derogatory marks on your credit file.
- Accruing debt – Carrying a large balance and accumulating interest lowers your score.
As long as you pay your balance on time and keep your utilization low, a new credit card should help build your credit in the long run. But irresponsible usage such as late payments, high balances, etc. can definitely hurt your score.
How much does a new credit card affect your credit score?
Generally, a new credit card causes a 5 to 10 point drop in your credit score initially. But over the next few months, responsible use of the card will offset this small drop. Within 6 to 12 months, it can help improve your score provided you use it wisely.
As an example, here is how a new credit card could affect your FICO® Score:
| Credit Score | Initial Impact of New Card | Score After 6 Months of Responsible Use |
|---|---|---|
| 780 | -8 points | +15 points = 787 |
| 690 | -10 points | +20 points = 700 |
| 610 | -7 points | +25 points = 628 |
As you can see, the initial drop is small, but responsible usage can boost your score in the long run. Of course, the exact impact will vary based on your individual credit profile and how you use the new credit card.
Tips to minimize the negative impact of a new credit card
If you want to minimize any temporary drop in your credit score after getting a new card, here are some tips:
- Avoid applying for multiple cards together – Stick to one at a time
- Ask issuer to not do a hard pull if you already have a card with them
- Pay down balances on current cards before applying
- Make sure to pay the new card on time and keep usage low
- Limit other credit applications for 6-12 months
- Monitor your credit report and score regularly
Being cautious about new credit applications and maintaining responsible usage helps offset any negative effects of the new account.
Frequently Asked Questions
Does being added as an authorized user affect my credit score?
Yes, being added as an authorized user on someone else’s credit card can impact your credit score. As an authorized user, the entire payment history of that credit card account is added to your credit report. So if it’s in good standing, your score can benefit, but if the primary user misses payments, your score would take a hit.
How long does a new credit card impact your credit score?
A new credit card can lower your score for about 6 months initially. But your score typically recovers within 12 months and improves after that if you use the card responsibly by paying bills on time and keeping balances low.
Does closing a new credit card account hurt your credit score?
Yes, closing a credit card soon after opening it can negatively impact your credit score. It can lower the average age of accounts and reduce your available credit, both of which hurt your credit score. It’s best to keep new accounts open for at least 12-18 months.
Does applying for a new credit card hurt your credit?
Every credit card application involves a hard inquiry which causes a small, temporary drop in your credit score. Too many applications in a short span are seen negatively. But a single application will cause a minor drop and won’t do major damage to your overall credit profile.
Conclusion
Getting a new credit card causes a small, short-term drop in your credit score, but responsible usage improves your score over the long run. Keep balances low, make payments on time, limit applications, and monitor your credit to minimize any negative impacts. Be strategic about applying for and using new credit to build a strong credit history.