How Does Opening a New Credit Card Affect my Credit Score?

by | Mar 15, 2019 | Personal Finance 101

If you’re wondering whether you should open a new credit card but you’re worried about how it might affect your credit, the short answer is that it depends.  Opening a new credit card can help your credit in some cases and hurt it in others but this depends mostly on what you choose to do with the new credit card and what your existing financial situation looks like as well as other factors.

Minor Dings

When you apply for a credit card, the issuing bank places an inquiry, which goes on your credit report, lowering your credit score by a few points.  This is minor and not really something to consider in most situations.  A new credit card lowers what is called the average credit age of your credit pool and this can lower your credit score a very small amount as well.

Major Factors

With that said and those minor negative effects accounted for, the real difference a new credit card can make on your credit score really depends on what you do with your new line of credit.  If you open a new card and charge a significant amount to it, perhaps to take advantage of a zero-interest offer toward a significant purchase, this will increase your credit utilization which can significantly impact your credit score negatively.  This impact depends on what percentage of your total credit the new card represents and what percentage of your total credit the new charge itself represents.  It is also impacted by how much debt you’re carrying on any other credit cards.

A Smart Approach

If you have other cards with a zero balance, they can buffer your credit score from the negative impacts of opening a new card and charging a significant amount on it.  So, in order to have the least negative impact on your credit rating and for the greatest flexibility to take advantage of new card program benefits, it can be helpful to make sure not to carry significant debts or otherwise to pay down those debts before considering opening a new credit card account.  In this way, you are minimizing the impact of opening a new account and charging to it by making your credit utilization as small as possible.

Please also note that if it is your first credit card, it can actually establish your credit score since you might not even have a credit history prior to getting your first credit card.

Looking for more financial advice on managing your credit score, planning for college, building wealth or planning for retirement?  Contact us.