Does Applying For a Credit Card Hurt Your Credit Score?

Thinking about getting a new credit card but worried it might affect your credit score? It’s a valid concern. Applying for a new credit card will affect your credit score in most cases. This is because a hard credit inquiry is usually required when you apply for a credit card. A hard credit inquiry is when a potential lender checks your credit report to help them decide whether to approve your application for a credit product. Any time a hard inquiry is performed, it will lower your credit score by a few points. 

How Applying For a New Credit Card Affects Your Credit Score

Applying for a new credit card requires a hard inquiry and will hurt your credit score in the short term. A hard credit inquiry is done by the lender to determine how likely you are to repay your debt. A hard inquiry can reduce your score by a few points and can stay on your credit report for up to 36 months.  

Applying for multiple credit cards in a short period of time is even more damaging to your credit score. It can appear like you are desperate for credit and this will likely cause lenders to think you are in financial trouble. No lender wants to loan money to someone who seems like they can’t pay it back. 

Hard vs Soft Inquiry

A hard inquiry can hurt your credit score and a soft inquiry will not. A hard inquiry is typically performed when you apply for a credit card, mortgage, or other types of loans. When a lender requests a hard inquiry, they see your full credit history and credit score. 

A soft inquiry is done when you check your own credit score, with a service like Borrowell. Some employers might also request a soft inquiry as part of the hiring process for a new job, or a landlord might ask for a soft inquiry on a rental application. Unlike hard inquiries, soft inquiries won’t impact your credit score.  

What Should You Do Before Applying for a Credit Card?

If you’re thinking about applying for a credit card in the near future, there are a few things you can do to prepare. 

Check Your Credit Score

First, check your credit score yourself. Before you apply for a credit card, you need to know what you can qualify for to help you to narrow down which credit card is the right fit for you before you start applying. 

Download Your Credit Report 

You should download your credit report to get a good understanding of what lenders will see when you apply for a credit card. Reviewing your credit report on a regular basis is also a good way to identify if any mistakes have been made on your report and to check for signs of identity theft. 

What Should You NOT Do When Applying for a Credit Card?

Now for the things you should not do when applying for a credit card. 

Apply for a Lot of Credit Cards at the Same Time

Applying for lots of credit cards at the same time is often a red flag for lenders. If a lender looks at your credit report and sees you’ve been applying for credit at various places, it can look like you are in financial trouble. Creditors want to loan money to people who are likely to pay it back, not those who are at risk of defaulting on their debt. 

Use All Your Credit

Just because you have access to a certain credit limit, doesn’t mean you should use all of it. Your credit utilization ratio is the amount of available credit you are using at a particular time. Credit utilization accounts for 30% of your credit score. Most experts recommend that you try to keep your credit utilization ratio below 30%, so this means if you have a credit limit of $1,000, you should aim to keep your balance below $300.

Once you go above this number it can appear to lenders that you are overextending yourself. Keeping your credit balances low and paying your bill off in full each month can help to keep your credit ratio low and boost your credit score. 

Miss Payments

Your payment history accounts for the largest portion of your credit score (35%). Missing a single payment can reduce your credit score by as much as 150 points. If you miss multiple payments, you can further damage your credit score. You can also expect to pay more in additional interest charges as well as late fees and penalties. The importance of paying your credit card bills on time can not be overstated.  

Cancel Other Credit Cards

It’s usually best not to cancel credit cards. Cancelling a credit card reduces your available credit and increases your credit utilization ratio. For instance, if you have $10,000 in available credit and you’re using $2,000, you have a credit utilization ratio of 20% ($2,000 divided by $10,000). If you cancel a credit card with a $5,000 limit, this immediately reduces your available credit to $5,000 and increases your credit ratio to 40% ($2,000 divided by $5,000), which is higher than recommended. 

Cancelling a card can also reduce the length of your credit history which accounts for approximately 15% of your credit score. Creditors want to get a sense of your credit risk. They like to see that you’ve been able to properly manage your credit over time. A long history of good credit signals to lenders you’re likely to act the same way in the future. Closing a credit card, especially one you’ve had for a long time, can therefore reduce your credit score.   

Does Applying for a Secured Card Hurt Your Credit Score?

Applying for a secured card can hurt your credit score. A secured credit card is like a regular credit card except you have to put down a security deposit to use it. The amount of your security deposit is typically equal to your credit limit. The credit card issuer holds on to the security deposit as collateral. If you miss a payment, that money is used to pay off the card.  

While many secured credit cards require a hard inquiry, which hurts your credit score, some secured credit cards do not require a hard check.  

Does Being Rejected for a Credit Card Affect Your Credit Score?

Being rejected for a credit card does not affect your credit score. However, if a hard inquiry was performed during the credit application process, this can decrease your score. If you are rejected for a credit card, it’s best to wait a few months before applying for another one to avoid multiple applications in a short amount of time. 

How to Increase Your Approval Odds?

To increase your chances of getting approved for a credit card, make sure you are monitoring your credit health and managing your credit wisely. Here are a few strategies to consider when trying to get approved.

• Review your credit score and credit history: Being aware of where your credit score stands and what creditors see when they review your credit history is step one. Reviewing this information will also tell you if you need to take steps to improve your credit score before applying for a credit card. 

• Research the cards you are likely to qualify for: If you have fair credit, don’t waste your time applying for cards that require excellent credit scores. This will likely result in more denials and more hard inquiries, which can reduce your score.

• Maintain a low credit utilization ratio: Aim to pay off your credit cards in full and on time each month. Making several credit card payments per month instead of one payment at the end of the month can also help to keep your credit utilization low. 

• Space out your credit card applications: Applying for multiple cards in a short period of time can hurt your credit score. If you apply for a card and you’re denied, wait a few months and work on increasing your credit score before applying for another card. 

• Include all streams of income: When applying for credit, you will be asked to include details on your income. To increase your chances of getting approved make sure you include all sources of income including any freelance work or side hustle money you make.

• Consider a secured card: If you’re struggling to get approved for a regular credit card, you might consider a secured card. It is easier to get approved for a secured card because you are required to put down a deposit as collateral. 

The Bottom Line

Applying for a credit card does hurt your credit rating. This is because a hard credit inquiry is required. However, the small decrease in your credit score is only temporary. When you run a credit check to determine your own score, a soft credit check is required and will not impact your credit score.