I strongly recommend applying for credit (of any kind) only when it is needed or when there is a useable benefit to you. Why do I say that? Because the simple act of applying could result in a negative outcome if it’s not done correctly. Let’s take a look at how applying for a credit card affects you and see if we can determine if it’s worth it in the end.

How applying for a credit card can hurt your score

When you apply for a credit card, you will trigger what is known as a hard inquiry. An inquiry can be simply defined as asking for information, in this case, from your credit report(s).

You may know that there are two types of credit report inquiries; these are known as “soft” and “hard” inquiries. An example of a soft inquiry is when you request a copy of your own credit report; another is when you receive a preapproved offer of credit. The reason these inquiries don’t impact your report or your score is because you are not asking for new or additional credit. Soft inquiries are information-only requests regarding your credit.

On the other hand, hard inquiries not only request your credit information, but they are also made for the express purpose of obtaining new or additional credit. Let’s say you did get a preapproved offer for a new credit card and decide that the terms are advantageous, so you go for it. At that point, you will have to actually apply for the card and you will trigger the aforementioned “hard inquiry.”

This is also the point that your credit report (and thus, your score) will be affected. Taking on new credit signals additional risk to your credit profile and could result in a dip in your score; this dip will be for one to two months on average. Why? Because it’s not clear why you want more credit and it’s not clear that you can handle the additional credit.

How much of a scoring dip depends on several other factors, which we will examine next.

How applying for a credit card can help your score

So you applied for that new credit card and you were approved. As noted above, your score may take a dip, but the impact (if felt at all) will likely be minimal. This is because you will have simultaneously increased your available credit, which could negate any losses from the hard inquiry. This result is especially pronounced in the case of a consumer with a limited credit history or a “thin file” as it is known in the credit business.

Because the thin file has fewer data, any change will likely have a more pronounced effect. Let me illustrate: Let’s say you fill your bathtub with water, then add a few drops of red food coloring. The change in color would be virtually invisible as the dye will be fully diluted by the large volume of water. Now let’s do the same thing but this time with only a shot glass of water. The color change from the dye in a small volume of water will be much more pronounced. The same effect applies to your credit report and, thereby your score. More data means less scoring impact; fewer data, more scoring impact.

You could also hurt yourself if you took out the credit card with the intent of charging something really big that would put you over 30 percent of your new available credit. Adding a large new debt and using a significant portion of your credit limit indicates a new potential risk, at least until you bring down your utilization factor and show you are able to make the larger payments over time. I would not suggest you go beyond 25 percent if possible. This will be best for your score’s credit utilization ratio, which accounts for approximately 30 percent of your total FICO score and is “extremely influential” to your VantageScore.

I recommend you add the new debt service amount and due date to your monthly payment calendar. Payment history is the No. 1 factor in FICO scoring, so be careful here. More than one consumer has fallen into the trap of forgetting about a new credit obligation in the beginning.

I like automatic payments for this reason. I usually set up a payment with my bank’s bill pay service the day I receive the bill. I set the pay-by date to coincide with the card’s due date since I like keeping my money until it’s due, but I also don’t like ever being late with a payment. Do what is best for you and your situation. Just be sure those payments are made on time.

Does being denied a credit card hurt your score?

If, on the other hand, your credit card application is denied, you will likely see a drop in your score that won’t be overcome by an increase in available credit. The very act of applying sends a signal to the credit scoring elves that you may want to take on new debt, which is always a risk. In this case, a lender has reviewed your file and your income (which is not in your credit file) and rejected your request.

Remember that even with preapproved offers of credit, there are no guarantees that you will be approved. This is true anytime you apply for credit, so keep that in mind. It is one of the main reasons I suggest, as I did in the beginning that you only apply for credit when you need to or it is otherwise to your advantage, like a sign-up bonus of some sort. And only apply when you are relatively sure you will be approved.

How to increase your odds of being approved

Wait! How can you be sure that you will be approved? Didn’t I just say there are no guarantees? I did, but there are actions you can take to increase your chances of being approved when you need or want to take on new credit.

You do this by paying your bills on time and as agreed each and every month because you know that payment history is important to your score. You also keep an eye on how much of your available credit you have used and keep that number below 25 percent across the board (meaning all of your credit cards). You don’t close old accounts without a good reason to preserve your length of credit history. You have a healthy mix of both revolving and installment accounts to demonstrate your ability to handle both variable and fixed payments.

This also means you need to be careful not to apply for too much credit at one time. An increase in your credit score may lead you to think you need to strike while the iron is hot and get every credit card you can. This is a strategy that will cause a lot more harm than good, so it should be avoided at all costs.

The bottom line

Remember that adding new credit has its pluses when done correctly and minuses if you don’t. So the name of the game here is patience and planning. I know that is hard in our fast-moving world, but having good credit will be worth it in the end. Good luck!

Have a credit score question for Steve? Drop him a line at the Ask Bankrate Experts page.