Does Applying for a New Credit Card Affect Your Credit Score Negatively?

The idea of getting exclusive offers and rewards just by signing up for a new credit card seems too good to be true. But before you finally submit a new credit card application, beware of 3 ways opening a new card hurt your credit score. This knowledge will probably help you to decide against applying for a new credit card application.

A new plastic card might increase the credit score significantly if it’s your very first card or if you had very small credit history before applying for a new card. Also, there are chances that you may not have had a credit score before having your 1^st plastic card. Within the duration of 6 months of opening another new credit card account, however, there should be sufficient information in order to develop a credit score for you.

In other cases, opening a new credit card can take a toll on your credit score temporarily or for a short-term. So, now learn in what cases, applying for a new credit card can hurt your credit score.

1.     Lowers Down Your Average Credit Age

AI Etihad Credit Bureau (AECB) uses some of the key factors to determine your credit score and credit age is one of them. Basically, your credit age makes up fifteen percent of the score. This actually measures the experience you have utilizing credit. Usually, the more experience of using credit you’ve and the older your accounts, the better your credit rating will be.

Moreover, there are 2 key factors in your credit age. First, the age of your oldest account and second is the average age of all of your accounts.

Opening up a new credit card account may lower down the average age of your all accounts. If you have multiple accounts and you have a long history then one new credit card application will have a minute impact. But on the other hand, if you only have a limited number of accounts then a new credit card will significantly lower down the average credit age of your accounts.

2.     Enhanced Credit Usage

A new credit card may take a significant toll on your credit score if you make a large purchase or you opt a balance transfer credit card and transfer high interest debt to that card so that you have increased credit utilization. The credit limit amount that you utilize is weighted heavily. Credit usage is assessed both per card as well as overall.

If you charge a balance that takes up a lot of your credit limit, then your credit score will definitely affect negatively. Reason being, 30 percent of your credit rating considers how much of your available credit limit is being utilized. So, the more of your new credit limit you are utilizing, the more your credit score will take a hit.

3.      Hard Credit Inquiry

Well, a hard inquiry is something that is placed on your credit report when you apply for a new card even if your credit card application is not approved and even if you later decide not to accept that particular credit card. A hard inquiry showcase that a business has already gone through your credit report in order to review your credit for a new credit card application.

Several hard credit inquiries in a short span of time leave a negative impact on your credit score since they provide an impression that you are trying to borrow in a very small period of time or you might be credit hungry.

Hard credit inquiries make up ten percent of your credit rating. On the basis of other information in your credit report, an extra inquiry might cost some credit rating points.

Some Good Effects of Opening a New Credit Card

There are not only negative effects of opening a new credit card on your credit score but also there are some positive effects apart from saving money on using it as everything has its two sides good or bad.

So now, we will talk about the positive part of it.

If you don’t use your credit card for making any purchases including the new one, your overall credit utilization will lower down and your credit score could improve significantly.

However, you can also improve your credit score by raising the types of credit on your account specifically if you do not carry a credit card. Having a diversified credit depicts that you can handle different types of loan altogether in a positive manner and it shows ten percent of your credit rating.

The Bottom Line

Make sure you make a purchase against your credit card what you can afford to pay on your card without taking financial planning stress. In addition to this, do not forget to make your credit card monthly payments on time. This will certainly help you to maintain a good credit score. Plus, you should always open up a new credit card on a requirement basis. If you really have its requirement then only you should open a new credit card and use it wisely to boost your credit score.