A new credit card may temporarily lower your score, but studies show it will benefit you in the long run. A hard inquiry occurs when a credit card company checks your credit history because you applied for one. Whether or not you are approved, this can result in a minor drop in your credit score.
A single inquiry is unlikely to have a significant impact on scores, but you may notice a temporary drop, especially if you have had multiple inquiries recently. In most cases, scores will recover within a few months if the rest of the credit history is in great condition.
In general, new accounts bring with them new risks. If you are approved for the account, you may notice a drop in your credit score when the account first appears on your credit report. However, your credit scores should improve if you keep your balances low and make all of your payments on time.
These are ways a new credit card can hurt your credit score.
Your average length of credit history could be harmed.
Credit scores consider the length of your credit history in addition to your payment history and credit utilization.
When a scoring model evaluates your credit history, it may take into account factors such as:
- The average age of your credit report’s accounts
- The ages of your credit report’s oldest and newest accounts
In these cases, older accounts may give you an advantage in terms of credit score.
Your credit history’s length isn’t as important as other credit score factors, but it does have an impact. It decreases when you open a new credit card. As a result, your score may fall slightly.
It’s important to note that the average age of accounts is a credit score factor that can only be improved over time.
If you know you’ll be making a large purchase in the near future; you should wait to open any new accounts until you’ve completed that transaction.
A new credit card may also be a bad idea if you don’t trust yourself to stay out of debt. It’s costly to carry a balance on your credit cards from month to month. This bad financial habit may also cause your credit utilization rate to rise. Even if you make your monthly payments on time, higher credit utilization may lower your credit score.
While some credit scoring systems may consider the number of accounts you have open, your payment history and utilization rate will be the true indicators of how well you manage your accounts. If you use your new account responsibly, your credit scores should soon return to normal.