Credit Cards

What happens to your credit score if you open a new credit card?

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Wondering how a new credit card will affect your credit score? This is what you need to know.

Key points

  • Applying for a new credit card means having a thorough investigation of your credit report.
  • Despite that minor bump, a new credit card could actually help improve your credit score.

There may come a time when you decide to open a new credit card. Maybe there is a card with a generous sign-up bonus. Or maybe you want a credit card that offers travel rewards.

If you’re going to open a new credit card, you should be aware that doing so could cause your credit score to drop modestly. But in the long run, a new credit card could help improve your score.

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A small credit score drop initially

Every time you apply for a loan or credit card, it counts as one in-depth inquiry on your credit report. A single comprehensive inquiry won’t do much damage to your credit. In any case, you should expect a drop of 5 to 10 points.

Now, if your credit score isn’t very strong and you’re getting ready to apply for a large loan, like a mortgage, then you may want to put off applying for a new credit card until that loan is current. You need a minimum credit score of 620 to get a conventional mortgage, so if your score is 624, a single comprehensive inquiry could drop you below that threshold. But if your score is 720, a 5 to 10 point hit shouldn’t matter.

A new credit card could also hurt your credit score a bit by lowering the average age of your open accounts. If you have seven credit cards, and have held them for 10 years or more, opening a new card probably won’t affect your score as much. But if you only have two cards that you’ve had open for a while, your score could take a hit in the short term when you open a new card.

A long-term benefit

If you don’t build up a large balance on your new credit card, opening it could help your credit score improve over time. An important factor that goes into calculating your score is your credit utilization ratio. That ratio measures how much of your total available credit you’re using at one time, and carries more weight in calculating your score than the length of your credit history.

Let’s say you currently have a total spending limit of $10,000 on all your cards and you have a balance of $3,500. That puts you at 35% utilization, which is pretty high and likely to do some damage to your score (a ratio of 30% or less, on the other hand, is good for your score). If you were to open a new credit card with a limit of $3,000, your credit utilization ratio would suddenly drop to 27%.

Should you apply for a new credit card?

There are many reasons why you might want a new credit card, whether it’s a better rewards program or more flexibility in case emergency expenses arise. While opening a new credit card might hurt your credit score initially, that impact should be minor. And you can more than make up for it by increasing your total credit limit.

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