Does Opening Another Credit Card Hurt Your Credit Score?

A credit score is a numerical representation of an individual’s creditworthiness, typically a three-digit number ranging from 300 to 850. This score provides lenders, such as banks and mortgage companies, with a quick assessment of how likely a person is to repay borrowed money and make payments on time. It influences various financial aspects, including eligibility for loans, credit cards, and interest rates. Opening another credit card often results in an initial, temporary decline in your score, but the overall effect is nuanced and depends on several factors.

Initial Score Adjustments

Applying for a new credit card initiates a “hard inquiry” on your credit report. This happens when a lender checks your credit history for a new application. The hard inquiry appears on your credit report, signaling to other potential lenders that you have recently sought new credit.

A hard inquiry usually causes a small, temporary dip in your credit score, often by 5 to 10 points. While the inquiry remains on your credit report for up to two years, its impact on your credit score typically diminishes within a few months and generally ceases to affect your score after 12 months. This initial reduction is often minor, and your score can recover quickly if you continue to manage your existing credit responsibly.

Impact on Credit Score Factors

Opening a new credit card can influence two credit score factors: the average age of accounts and credit utilization. A new account directly lowers the overall average age of all your credit lines because it introduces a younger account into your credit history. This change is viewed by credit scoring models as indicating a less established credit history, which can negatively affect your score.

The length of credit history, which includes the average age of accounts, accounts for approximately 15% of a FICO score. The impact of a new account on this factor is more pronounced for individuals with a short overall credit history or only a few existing accounts. Maintaining older accounts, even if infrequently used, can help preserve a longer average credit age.

Conversely, opening a new credit card increases your total amount of available credit, which can positively influence your credit utilization ratio. By increasing your total credit limit while maintaining consistent spending, your utilization ratio can decrease, which is favorable for your score.

Lenders and credit scoring models prefer to see a credit utilization ratio below 30%, with those possessing excellent credit scores often keeping it below 10%. However, if the new credit card leads to increased spending and higher overall debt balances, the potential benefit to your utilization ratio can be negated or even reversed. This can result in a higher utilization ratio and a negative impact on your credit score.

Credit Score Components Overview

Credit scores are determined by analyzing various pieces of information within your credit report, grouped into five main categories. Payment history, the most impactful factor, accounts for about 35% of a FICO score and reflects your consistency in paying bills on time. This category assesses whether you have met your financial obligations promptly.

Amounts owed, also known as credit utilization, constitutes approximately 30% of your score, indicating the proportion of your available credit that you are currently using. The length of your credit history, which includes the average age of your accounts, makes up around 15% of the score. This factor demonstrates how long you have been managing credit.

New credit, encompassing recent applications and newly opened accounts, contributes about 10% to your credit score. The final 10% is attributed to your credit mix, which evaluates the variety of credit types you manage, such as credit cards, installment loans, and mortgages. These components collectively provide a comprehensive view of your credit behavior.