Picture this: you're trying to increase your credit score so you're applying for new credit cards left and right. But wait a minute – does applying for credit cards hurt your score? Should you pump the brakes on those applications? You're in the right place! In this blog post, we'll explore the impacts of applying for credit cards on your credit score and discuss ways to manage and optimize the process without damaging it.
Does Applying For Credit Cards Hurt Score Table of Contents
How Applying for Credit Cards Affects Your Credit Score
When you apply for a credit card, the card issuer does a hard inquiry (also known as a hard pull) on your credit report. This means they're checking your credit history to determine the likelihood that you'll repay your debt.
Hard Inquiries and Their Impact
Hard inquiries can have a negative impact on your credit score, but their effect is typically small. They account for approximately 10% of your FICO score calculation. Although each hard inquiry may decrease your score by a few points, multiple inquiries within a short timeframe can have a more significant impact.
It's important to note that hard inquiries stay on your credit report for two years, but their influence on your score typically diminishes after about 12 months.
New Accounts and the Average Age of Your Credit
When you open a new credit card account, it lowers the average age of your credit, which can also negatively affect your score. The length of your credit history makes up about 15% of your FICO score calculation. A lower average age of credit indicates that you're a newer borrower and may be seen as riskier to lenders.
How to Minimize the Impact of Credit Card Applications
Despite the potential negative effects, there are ways to manage and optimize the process of applying for credit cards to minimize the damage they can do to your credit score.
1. Space Out Your Applications
By spacing out your credit card applications and waiting for at least six months between each, you can reduce their impact on your credit score. This gives your score time to recover from any hard inquiries and allows your average age of credit to increase.
2. Utilize Prequalification Offers
Many credit card issuers allow you to check if you prequalify for their cards before submitting a full application. Prequalification typically uses a soft inquiry, which doesn't impact your credit score. While prequalification isn't a guarantee of approval, it increases your chances and helps you avoid applying for cards when you're unlikely to be accepted.
3. Maintain a Healthy Credit Utilization Rate
Your credit utilization rate – the percentage of your available credit that you're using – accounts for approximately 30% of your FICO score. By keeping this rate low (ideally below 30%), you can mitigate the effects of new credit card applications on your score.
Does Applying For Credit Cards Hurt Score Example:
Let's say you've applied for three credit cards within a six-month timeframe. Your FICO score took a small hit from the hard inquiries, which we'll assume to be a total of 15 points. However, your credit utilization rate is well-managed at 20% and the average age of your credit is five years.
In this scenario, while your credit score has temporarily decreased, it should recover within a year as the impact of the hard inquiries starts to diminish. By spacing out future applications and maintaining a low credit utilization rate, you can continue building and optimizing your credit score.
Now that you know the potential effects of applying for credit cards – and how to minimize any damage to your credit score – you can make informed decisions about your credit future. Remember, it's important to maintain a healthy credit utilization rate, space out your applications, and use prequalification offers when possible. Be sure to share this article with friends and family who may be curious about applying for credit cards and visit Flik Eco for more great content on personal finance and investing!
