Have you ever wondered whether applying for multiple credit cards affects your credit score? As a millennial, your credit score is more important than ever when it comes to getting approved for loans and obtaining low-interest rates. In this article, we'll break down how and why applying for credit cards can impact your credit score and provide the specifics you need to help you make wise financial decisions.
Applying For Credit Cards Affect Credit Score Table of Contents
Hard Inquiries: The Effect on Your Credit Score
When you apply for a credit card, the issuer will perform a hard inquiry on your credit report. A hard inquiry, or hard pull, is a detailed check made by a financial institution when you're seeking credit. This inquiry provides the issuer with necessary information to determine your creditworthiness and ultimately approve or deny your application.
Having one or two hard inquiries on your credit report isn't a big deal. However, multiple inquiries within a short period might raise concerns for potential lenders. According to FICO, the presence of multiple inquiries can result in a temporary dip in your credit score by a few points.
How Much Can Your Credit Score Drop?
The impact of a hard inquiry on your credit report varies depending on the individual and their current credit standing. For those with an already high credit score, the effect is typically minimal. On the other hand, if you have a low credit score or a thin credit file, the impact might be more substantial. Generally, applying for one or two credit cards within a reasonable timeframe should not significantly hurt your credit score.
How Long Do Hard Inquiries Remain on Your Credit Report?
Hard inquiries typically remain on your credit report for two years. However, their impact on your credit score reduces as time goes on. According to FICO, hard inquiries lose their significance within a year and are no longer factored into your score after 12 months.
Tips for Managing your Credit Card Applications Responsibly
To avoid hurting your credit score from multiple credit card applications, consider the following tips:
- Space out your applications: Ensure proper spacing between credit card applications to avoid a sudden dip in your credit score.
- Be selective: Apply for credit cards that best match your current credit profile to increase the likelihood of approval and prevent excessive credit-seeking behavior.
- Research before applying: Familiarize yourself with the eligibility criteria for each credit card you're interested in, and avoid applying if you don't meet the minimum requirements.
Applying For Credit Cards Affect Credit Score Example:
Let's consider an example to drive the point home. Jake, a millennial who has just started his career, wishes to apply for a credit card. His current credit score is 720, and he recently applied for another credit card.
If Jake were to apply for a second credit card within a few weeks, his credit score could drop by a few points temporarily. However, if he spaces out the applications over a few months, the impact on his credit score will be less significant.
Jake plans to purchase a car in the next year, so he wants to maintain a healthy credit score. He decides to research credit cards and understand their eligibility criteria before applying. By doing so, he avoids making multiple applications and unnecessarily impacting his credit score.
We hope this article has provided the insights you need to understand the impact of applying for multiple credit cards on your credit score. It's vital to make informed decisions when it comes to managing your finances effectively. As a Flik Eco reader, we encourage you to share this article with your friends and family to help them make better financial decisions as well. For more helpful tips and comprehensive guides, explore the Flik Eco blog, and take control of your financial future.
