Applying for multiple credit cards can be tempting, especially when you're drawn in by rewards and benefits enticing you to sign up. But before you hit that "apply" button, have a moment of pause - could applying for multiple credit cards affect your credit in a negative way? In this article, we will delve deep into the impact of applying for numerous credit cards and also provide a realistic example to help you make informed decisions about your credit card applications.
Does Applying For Multiple Credit Cards Affect Credit Table of Contents
The Effect of Hard Inquiries
When you apply for a credit card, the issuer will perform a hard inquiry (also known as a hard pull) on your credit report to evaluate your creditworthiness. These inquiries can have a negative impact on your credit score, although the effect is usually small and short-lived. Here's a breakdown of the potential effects:
- Each hard inquiry could potentially lower your credit score by a few points.
- Hard inquiries remain on your credit report for 2 years, but only impact your score for 1 year.
- Multiple inquires within a short timeframe could raise red flags for lenders, making it appear that you're desperate for credit or are a high-risk borrower.
Understanding the 5/24 Rule
A major factor to consider when applying for multiple credit cards is the infamous 5/24 rule. This unofficial guideline, put in place by Chase, states that applicants can be automatically rejected for a new credit card if they've opened five or more credit accounts within the past 24 months. While this rule directly applies to Chase credit cards, other issuers may also consider your recent credit account history when evaluating your application.
New Accounts and Average Age of Credit
Opening multiple new credit card accounts can also impact your credit score by lowering the average age of your credit accounts. This factor is part of your credit score calculation and rewards a longer credit history. When you open several new cards within a short period, the average age of your accounts will decrease, potentially having a negative impact on your credit score.
Does It Always Hurt?
However, applying for multiple credit cards doesn't always have a negative impact on your credit. In some cases, it can even be beneficial:
- Having multiple credit cards may increase your overall credit limit, which could reduce your credit utilization ratio (the amount of credit used compared to your total credit limit).
- If used responsibly, multiple credit cards can help you build a diverse credit profile, demonstrating your ability to manage different types of credit accounts.
Does Applying For Multiple Credit Cards Affect Credit Example:
Meet Jane. She currently has two credit cards and is considering applying for two more. Her credit score is in the "good" range, and she has never missed a payment. Over the course of three months, Jane applies for and gets approved for two new credit cards. Here's what may happen:
- Jane's credit score takes a dip due to the hard inquiries on her credit report, dropping by around 10 points.
- Her average age of credit decreases from 4 years to 2.5 years, slightly lowering her score further.
- She uses the two new cards wisely and maintains low credit utilization across all accounts. Within a year, her score starts to rebound and even improves.
- Jane's diverse credit profile and responsible use of credit help her maintain a healthy credit score over time.
Applying for multiple credit cards may have a temporary negative impact on your credit score, but with responsible use, it isn't always a bad idea. Understanding how hard inquiries, average age of credit, and other factors affect your credit score is key to making informed decisions about your credit card applications.
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