Credit card issuers consider a number of factors, including your credit score, when determining your creditworthiness. To access your credit report, issuers will do a hard inquiry, which does have a small negative effect on your credit score. However, the effect is only temporary, and adding a credit card to your rotation has the potential to grow your credit score in the long term.
How does applying for a credit card affect your credit?
When you apply for a credit card, your potential card issuer will look into your credit report to check your creditworthiness. This kind of credit check is called a hard inquiry. A hard inquiry can lower your credit score, but only temporarily. That said, multiple hard inquiries into your report can make you appear like a credit risk. Multiple hard inquiries are the result of applying for multiple credit cards. Issuers may be reluctant to approve a credit card if they see several hard inquiries on your credit report in a short period of time.
Hard inquiries and multiple applications are not the only things that affect your credit score. In fact, there are five credit score factors that are used to calculate your score. These factors are credit history, credit utilization, new credit, credit mix, and payment history.
- Credit history makes up 15 percent of your credit score and correlates with how long you’ve had your credit card accounts. When you add a new credit card, you are shortening the average length of your credit history, lowering your score.
- New credit makes up 10 percent of your credit score and is factored in whenever you add a new line of credit. Adding multiple lines of new credit in a short period of time can have a negative effect on your ability to get approved.
- Credit mix is worth 10 percent of your score and has to do with the variety of credit you have, such as credit cards, loans, and mortgages. Credit card issuers are looking to see that you can manage different kinds of payments. Having different kinds of credit cards can strengthen this score factor.
- Credit utilization makes up 30 percent of your score and has to do with the amount of total credit you have versus the amount you use. While this isn’t affected by the application process itself, when you add a credit card to your financial portfolio, you are adding to your available credit, which should improve your credit utilization.
- Payment history makes up the largest part of your score, coming in at 35 percent. Your payment history is determined by whether you pay your bills on time and for the appropriate amount. When adding a credit card, it’s important to budget for your new credit card payments. Missing a payment will have a negative effect on your credit score. And a missed payment will stay on your credit report for seven years.
Know your credit score before applying for a credit card
A healthy credit score will give you a higher likelihood of approval for credit and access to higher tier credit cards. The vast majority of rewards credit cards are looking for credit scores in the good to excellent range (670 to 850) and a low credit score will limit the kind of credit you can get approved for.
Knowing your credit score before you apply for a credit card will help you determine which card is the best for you. Choosing a card that is within your credit score range will also give you a better chance for approval. Applying for a card that is outside of your credit score range could lead to your application being declined. This may lead to the need for multiple applications which can be a red flag for card issuers. It could also make it difficult for you to get a credit card at all.
If you’re not sure what your credit score is, it’s very easy to check. You’re entitled to a free credit report once a year from all three credit bureaus (Experian, Transunion, Equifax). And if you want to have more consistent access to your credit report, Bankrate offers free credit reporting. When you sign up for Bankrate’s credit reporting, your score will be updated regularly and you will receive notifications for any important changes in your report.
What’s the best time to apply for a credit card?
When applying for a credit card, it’s a good idea to get the most out of any bonuses or welcome offers that are on the table. Try to time your application in relation to any large purchases you know are coming up so you can make them during an introductory zero percent APR period. And if you’re applying for a travel rewards card, try to time it so that you can take advantage of any welcome miles or points for upcoming travel. If you’re applying for multiple cards, make sure you’re spacing out your applications. Ideally, you want to give three to six months between each application to allow your credit score time to bounce back from a hard inquiry. It also shows card issuers that you’re applying for credit responsibly.