In last week’s post we spoke about not opening or closing a credit card before applying for a mortgage, but many readers asked me to more elaborate on how much opening a new credit card will affect your credit score.
There is no one size fits all answer to this question of what affect will opening a new credit card have on your credit score. But here in this post I will go though the different points to consider so you can try to figure out, before opening a credit card, how much of an affect it will have on your credit score.
Every time when you apply for a credit card the bank will want to pull your credit report to see your credit history, credit score, etc. This is called a credit inquiry. A credit inquiry will show on your report for the next two years. There is no difference if you got approved for the credit card or not. Before lenders approve you for credit they will want to see how many times you tried to apply for credit in the past. No one likes to lend money to someone who is running around town and asking every bank for a loan.
FICO and Vantage Score will slightly lower your credit score after you make a credit inquiry. It will basically go back up after about one to two months. But too many credit inquiries may affect your score more. It is not recommended to have more than 5 credit inquiries in a 6 month period.
Please note that most banks will only pull one of the three credit bureaus, so if you applied for a Chase credit card and Chase pulled your Experian credit report. Then you go and apply for a Discover credit card and Discover then pulls your Equifax report. Then you apply for a Barclay card and Barclay pulls your Transunion report. Even though you applied for three credit cards, you still only have one credit pull on each of your credit reports (Capital One is the only large issuer that does pull all three credit bureaus.)
DOC put together a great page where you can find all information on which bank will pull your report from which credit bureau. You can find the page here.
New Credit Line
Once you get approved for the credit card, the new account will eventually get reported to the credit bureaus (depending on the bank it can sometimes take about 30 days). Once your new account gets reported then your credit will get another blow, because now you have opened a new account. So credit models will lower your score until they see that you prove yourself capable to handle the new credit.
New credit does not affect everyone equally. Someone who has less open accounts or a lot of new accounts will get more affected by a new credit card than someone who has a lot of good standing and old accounts.
Average Age of Credit
There are a lot of credit blogs and credit analyst that claim that one of the things credit models will look at is your average age of credit. For example, if you have one credit card that is 5 years old and one card that is 2.5 years old then your average age of credit will be 3.25 years. But now if you open a new card then the new card will bring down your average age of credit to 2.5 years which may result in a lower credit score. I personally never found this to be true (read more here), so even though I do agree that as long as the new account is new (less than 6 months) your score will be affected by the new account, but once six months pass your score will be back to the same or even higher then it was before, regardless of what your average age of credit is now.
Before opening a new credit card account consider the following:
1) You score will go down by a few points when you apply as a result of the credit inquiry. This will be no matter if you get approved or not. This affect will last for one to two months.
2) Once you get approved, you score may get hit as a result of having a new account on your credit report. This affect will last for up to six months.
3) There is a theory that your score may also get affected as a result of a now lower average age of credit, but I personally dispute this theory (I’m allowed to, right?)
One more thing you may want to consider before applying for a new credit card, is that by using the links found here on the blog you are significantly supporting this great blog. So thank you from me and from all other readers!
Have a great day!