Does Opening a Credit Card Hurt Your 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. Under 5% is even better and what you should strive for. 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 that 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.

There’s one “fine point” to know here, though. If you have one old card and s ton of new cards, that will hurt what’s called your “average age of account” – so like everything else we teach, go slow and in moderation – and avoid closing your older cards (not just your oldest one).

* 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 negative impact.

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 (Spark Cash Plus is an exception) 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 Miles or Discover business credit card as that can potentially hurt your credit score via an increased utilization percentage. If you use a Capital One Spark Miles (which is a great card!) 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 absolutely 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 to make sure there are no errors. And of course, if you will be buying a house, 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 or Comments?

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