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Wednesday, May 15, 2024

Does Applying for a Fresh Credit Card Hurt Your Credit Score?

Applying for a credit card is one of the easiest ways to build your credit score, but it’s often misunderstood. Credit scores are complicated and mysterious. They’re used to assess how much risk a lender takes on when you borrow money, and they sometimes show you that information upfront. Whether or not applying for a new credit card will hurt your score depends on several factors, like where you apply for the card, how long ago it was opened, and how often you use it—and it can be difficult to predict in advance. You’ll explore some common questions about applying for new cards to help get you started!

Does applying for a credit card affect your credit score?

Applying for a credit card does affect your credit score. However, the impact depends on how you apply. According to SoFi experts, “There will be a hard credit pull as part of the application, which may impact your credit score.”

You can follow one of the two ways to apply for a credit card:

  • You can apply online or over the phone. This is known as an electronic application and does not affect your score since it doesn’t show up on your credit report.
  • You can go into a branch location and fill out an application there. This is known as a paper application and affects your score by showing up as a “hard” inquiry in your file (which we’ll discuss later).

How having more credit cards can affect your score?

Most people believe that this is because having more cards means there’s a higher risk of someone maxing out all their credit limits and going into debt. But this isn’t true. A cardholder who pays their balance in full every month does not affect anyone else’s finances—and therefore, no effect on their credit scores either!

It hurts to have multiple accounts because each new account increases the amount of data lenders have about you (or at least they think they do). This puts them at greater risk of making mistakes when assessing whether or not it’s safe to lend money to you.

How does applying for a fresh credit card impact your credit utilization ratio?

The credit utilization ratio is the amount of your credit card debt compared to your credit limit. The lower that number is, the better. Suppose you have a high credit utilization ratio and apply for another card. In that case, it can negatively impact your score because it increases how much you owe compared to how much money is available if something goes wrong (like paying off one card with another). If you have a low utilization rate, applying for more cards may help improve it.

How hard inquiries impact your credit score?

Hard inquiries are when you apply for a new line of credit—for example, a mortgage or auto loan. When you apply for a new credit card, it’s also considered a hard inquiry. These inquiries remain on your report for two years from the date they were made, so it’s important to understand how they can affect your credit score and how to avoid them in some cases.   

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