How Much Does Applying for a Credit Card Affect Your Credit?

Credit scores reflect an individual’s creditworthiness, influencing access to financial products like loans and credit cards. They represent a lender’s assessment of lending risk. Understanding how actions, such as applying for a credit card, influence credit standing is important for managing personal finances.

Credit Inquiries and Their Types

A credit inquiry occurs when a lender or authorized entity accesses an individual’s credit report. These inquiries are recorded and categorized into two main types: soft and hard. Their distinction lies in purpose and effect on a credit score.

Soft inquiries happen when a credit report is checked without a specific application for new credit. Examples include checking one’s own credit score, pre-approved credit card offers, or employer background checks. These inquiries may appear on a credit report but do not impact credit scores.

Hard inquiries occur when a consumer applies for new credit, such as a credit card, mortgage, or auto loan. The prospective lender requests a full credit report review to assess creditworthiness. These inquiries are recorded and can influence credit scores. Applying for a new credit card results in a hard inquiry.

Direct Score Changes from Applications

A hard inquiry from a credit card application typically results in a small, temporary dip in a credit score. For most, a single hard inquiry might reduce a FICO Score by less than five points. The exact impact varies based on credit history, with a greater effect on those with limited accounts or a short history.

Hard inquiries remain visible on a credit report for up to two years. However, their influence on credit scoring models, such as FICO Scores, generally diminishes much sooner, often within 12 months. The score usually begins to recover within a few months, especially with responsible credit behavior.

Credit scoring models account for “rate shopping” behavior when consumers apply for certain types of loans. Multiple inquiries for the same type of credit (e.g., auto, mortgage, student loan) within a short timeframe may be treated as a single inquiry. This “shopping period” can range from 14 to 45 days, depending on the credit scoring model (e.g., FICO Score versions or VantageScore). This helps consumers compare rates without multiple negative impacts. However, this “rate shopping” treatment generally does not apply to credit card applications; each credit card application typically results in a separate hard inquiry.

Broader Credit Profile Adjustments

Opening a new credit card account can lead to several adjustments in a credit profile beyond the initial hard inquiry. These changes influence credit score components over time, depending on how the new account is managed.

One factor is credit utilization, the amount of credit used compared to total available credit. Adding a new credit card increases the total available credit limit. If balances are kept low on new and existing cards, this can lower the overall credit utilization ratio, which is viewed positively by credit scoring models. A lower ratio, typically below 30%, can contribute to a higher credit score.

Another aspect affected is the average age of accounts. When a new credit card is opened, it is a “young” account, which can reduce the average age of all credit accounts on a credit report. This can have a slight negative influence on a credit score, particularly for individuals with a short credit history or only a few existing accounts. Credit history length and average age of accounts are factors in both FICO and VantageScore models.

The credit mix, which refers to the different types of credit accounts an individual has, can also be influenced. While adding another revolving account like a credit card may not diversify a profile significantly if other revolving accounts already exist, it can contribute positively if it adds a new type of credit. Lenders generally prefer to see a diversified credit mix, demonstrating the ability to manage various forms of credit responsibly, such as both revolving credit and installment loans. The impact of credit mix varies between scoring models, with FICO Scores considering it as approximately 10% of the score.