Consumer Comeback Blog

The Truth About New Credit Cards and Your Credit Score

Written by Jeffrey Trull

credit-card-account-applicationBefore you send off your credit card application, you may be wondering: “How will this affect my credit score?”

Many struggle with this question, especially with myths and misinformation floating around (just like there is for closing a credit account).

Weighing your decision to open a new credit card account means considering the benefits of a new card, too. After all, you may be after better rewards, more useful features, or simply having more payment options.

It’s not all bad news for your credit, either. In fact, a new card account may eventually increase your credit score.

Here’s the breakdown on the good and the bad with your credit score and opening a new credit card account.

Lowers credit age

Just about all of the ways that a new credit card can help or harm you score points to how a FICO score is calculated. One of those ways: a new credit card will lower your credit age.

Credit age is represents roughly 15% of your credit score, and having older lines of credit generally leads to a higher score. Therefore, adding new accounts can have a negative impact on your credit.

It’s nearly impossible to quantify the impact on a typical credit card holder since it depends on other accounts appearing on your credit report. But your credit score is based the age of your oldest account, newest account, and an average of all accounts that appear on your report.  Those who have more accounts on their credit report will see a smaller change average credit age than those that just have a few accounts and a shorter credit history. If you know you don’t have an extensive credit history, be aware that you may see increased impact on your credit score.

Adds an inquiry to account

Generally, inquiries into your credit will have a negative impact on your credit score. While inquiries, which make up about 10% of your FICO score, that you request yourself or are for a mortgage or auto loan don’t carry as much or any weight, new credit accounts almost certainly factor in. However, a few inquiries here and there are likely to only have a minimal impact.

While opening a new account won’t hurt, applying for several new cards at one time can be more damaging. Fair Isaac, the corporation responsible for FICO credit scores, advises against opening several credit accounts at one time. Why? Doing so represents a greater risk, and your credit score may be adjusted accordingly.

Affects utilization

Credit card utilization is an interesting aspect of the equation since the impact on your credit score can go both ways. Hopefully any change to credit utilization, which accounts for about 30% of your FICO score, will actually result in a better score in the long run thanks to your new account. This is because you’re adding to the amount of available credit you have versus how much of it you’re using. It’s best to keep credit utilization as low as possible since using too much of your available credit could lower your score.

The damage is actually done when you open a new credit account and immediately use a good portion of the available credit. This can be especially problematic for cards with lower credit limits, like store credit cards, and especially when you may charge your first purchase on your card. If that first purchase eats up a good portion of your credit limit, you may see a negative credit score change.

No impact from having many cards

If you’re fixated on the number of credit cards you have open, don’t be. The actual number of cards that you have has little impact on your credit score compared to how you’re maintaining your credit.

One key credit score factor that doesn’t depend on the number of credit card card accounts: payment history. Your payment history typically accounts for 35% of your score, so making payments on-time should be your focus rather than worrying about how many credit cards you have.

Look to the amounts you owe on those cards, too, as mentioned above. Paying off some credit card debt will most likely help increase your score.

The bottom line: don’t be afraid to open new credit accounts, but be smart about when and how you do so.