If there's one thing that makes millennials nervous, it's the thought of hurting their credit. Whether it's the fear of rejection or the impact on their credit score, the question of whether applying for credit cards hurts their credit is a common concern. In this article, we'll break down the process, explain the factors to consider and provide a realistic example, all in a way that won't make your head spin. Let's dive in and see if that new credit card application is worth the potential impact on your credit score.
Does Apply For Credit Cards Hurt Credit Table of Contents
Understanding Credit Inquiries
Understanding Credit Inquiries
Every time you apply for a credit card, the issuer will check your credit report from at least one, if not all, of the three main credit bureaus – Equifax, Experian, and TransUnion. This is called a "hard inquiry" on your credit report.
Hard Inquiries vs. Soft Inquiries
It's essential to understand the difference between hard and soft inquiries before diving into their impact on your credit score.
- Hard inquiries: Occur when a lender checks your credit to decide on your creditworthiness for things like credit cards, loans, or mortgage applications. Hard inquiries appear on your credit report and may temporarily lower your credit score by a few points.
- Soft inquiries: Occur when you, an employer, or a lender checks your credit for a background check or pre-approval. Soft inquiries do not impact your credit score and are only visible to you on your credit report.
How Hard Inquiries Impact Your Credit Score
A hard inquiry is only one factor that affects your credit score, but it's an important one to keep in mind. Here are some specifics about hard inquiries:
- Hard inquiries make up approximately 10% of your FICO credit score.
- They usually lower your credit score by a few points, but the impact lessens over time.
- One hard inquiry will typically only lower your score by around 4-8 points, but multiple inquiries within a short period can have a more significant effect.
- Inquiries remain on your credit report for two years, but the major credit scoring models only consider inquiries from the past 12 months during their calculations.
Does applying for multiple credit cards hurt your credit?
Applying for multiple credit cards within a short period can raise a red flag to lenders as it could indicate you're in financial trouble or desperate for credit. Each credit card application will result in a hard inquiry, and these inquiries may add up and hurt your credit in the short term. However, the negative impact will lessen over time.
Wise Credit Card Application Strategies
To minimize the impact of credit card applications on your credit score, consider the following strategies:
- Research and find the best credit cards that suit your needs to ensure a higher chance of approval.
- Space out your credit card applications by at least six months to allow your credit score to rebound.
- Remember to consider the impact of any other loan or credit applications during the same timeframe.
Does Apply For Credit Cards Hurt Credit Example:
Imagine you are a millennial named Alex. Alex wants to apply for a new credit card, and he has a 700 credit score. He applies for a credit card that he's interested in, resulting in a hard inquiry on his credit report. This inquiry temporarily lowers his score by 5 points.
Six months later, with responsible credit usage and on-time payments, Alex's credit score has rebounded. He applies for another credit card and experiences another 5-point drop in his credit score. This strategy allows Alex to open new credit accounts while minimizing the impact on his credit score.
Understanding the impact of credit card applications on your credit score is crucial for responsible personal finance management. As you can see, applying for credit cards can temporarily hurt your credit, but with careful application strategies and responsible credit usage, you can minimize the long-term impact.
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