Are you considering applying for a new credit card but worried it might hurt your credit score? You're not alone. This is a common concern for consumers, especially those who may not have the best credit history. In this article, we will explore how applying for credit cards may affect your credit and provide you with information to make the right decision for your financial future. With simple explanations and realistic examples, Flik Eco is here to guide you every step of the way.
Can Applying For Credit Cards Hurt Credit Table of Contents
How credit inquiries impact your credit score
How credit inquiries impact your credit score
When you apply for a credit card, the issuer will perform a "hard inquiry" on your credit report. This is a standard procedure for creditors to assess your creditworthiness. A single hard inquiry can have a small negative impact on your credit score.
Why do hard inquiries matter?
Credit scoring models (such as FICO and VantageScore) consider recent credit inquiries as an indication of potential risk, as they could be a sign of financial distress or poor money management. However, hard inquiries are just a small portion of your credit score calculation, usually accounting for less than 10% of your total score.
Multiple credit card applications and your credit score
While a single credit inquiry can somewhat affect your credit score, applying for multiple credit cards within a short period of time can have a more significant impact. Each hard inquiry may lower your score by a few points, and multiple inquiries can give the impression that you're desperate for credit or having financial difficulties.
The Impact of New Credit Card Accounts
Opening a new credit card account can also affect your credit score in other ways. The average age of your credit accounts will decrease as a new account will have a shorter history. This can slightly lower your credit score, too. On the flip side, a new credit card account can also increase your overall available credit, which can improve your credit utilization ratio (assuming you don't take on additional debt), a significant factor in credit score calculations.
Pre-qualifying or pre-approval offers: A safer approach
If you are concerned about the impact of hard inquiries, consider seeking pre-qualified or pre-approval offers from credit card issuers. These offers usually involve a "soft inquiry," which does not affect your credit score. Soft inquiries allow issuers to determine your likelihood of approval and can help you avoid unnecessary hard inquiries and credit score damage.
Can Applying For Credit Cards Hurt Credit Example:
Imagine you are applying for two credit cards within a month. Each hard inquiry might knock your credit score down by a few points. If your credit score was 720 before, it might drop to around 710 after both inquiries. However, if you've responsibly managed your new credit accounts, your credit score will likely rebound and even improve over time with good payment history and improved credit utilization ratio.
Now that you know how applying for credit cards can impact your credit, you can make an informed decision about whether it's the right move for you. Remember, a single hard inquiry may have a small effect, but multiple applications in a short period can harm your credit score more significantly. If you're concerned, consider seeking pre-qualified or pre-approval offers to avoid unnecessary hard inquiries. Be sure to check out other Flik Eco articles for more personal finance and investing tips, and don't hesitate to share this article with those who might find it helpful.
