Does applying for a credit card hurt your credit? It’s an important question to consider before shopping for a new credit card. Not all credit cards are the same, so choosing the right one is essential to ensure it fits your spending habits and financial goals.
As you look at your options, it’s important to understand that opening a new credit card could cause a brief dip in your credit score. But, using your credit card wisely could help you increase your overall credit score.
Here’s what you need to consider before applying for a new credit card—and some of the benefits you may experience with your new card.
How applying for a credit card can hurt your credit score
Applying for a new credit card can trigger a hard inquiry, meaning the lender will look at your credit reports. The hard inquiry will typically stay on your records for two years but only count towards scoring for up to 12 months. This may lead to a slight drop in your credit scores, according to FICO®.
How applying for a credit card can help your score
You may experience a dip in your credit score upon getting approved for a new credit card, but having a new one carries several benefits.
Increase Credit Utilization
Your available credit increases, which can help improve your credit utilization ratio. This ratio is calculated based on the total available credit you’re using. Experts recommend keeping it below 30%. To maintain a low utilization ratio, keep track of your balance and avoid charging large purchases.
Improve Credit Mix
Getting approved for a new credit card could improve your credit mix. Credit mix is your different types of accounts, such as car loans, mortgages, and credit cards. Credit card issuers like to see that borrowers can responsibly manage these different types of debt. A healthy credit mix demonstrates financial diversity and stability, which are good markers for lenders.
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Benefits of Opening a New Credit Card
Whether you’re looking to consolidate debt, save for a major purchase or build up an emergency fund, your new card could be just the tool to get you there.
Here are a few additional benefits to opening a new credit card:
- Earn rewards – Many credit cards offer rewards programs that allow you to earn points or cash back on your purchases. If you use your credit card for everyday purchases, you can quickly rack up many rewards. The rewards can often be for travel, gift cards, or statement credits.
- Take advantage of 0% APR periods – Many credit cards offer 0% APR periods on new purchases or balance transfers, which can be helpful if you are trying to pay off a large purchase or transfer a balance from another card with a high-interest rate.
- Build up your emergency fund – You can use your credit card to build up your emergency fund if you charge only what you can afford to pay off each month. If you have an unexpected expense, you won’t have to put it on a high-interest credit card or take out a loan.
How to improve your chances of credit card approval
Improving your credit score is a great way of increasing the likelihood that you’ll be approved for a credit card. Boost your creditworthiness and improve your chances of being approved for a credit card with these tips:
- Check your credit report regularly. By checking your report, you can catch errors and correct them before they have a chance to impact your score. You can also keep an eye on your account balances and ensure you are not using too much of your available credit.
- Make your payments on time. Payment history is one of the most important factors in determining your credit score. If you need help remembering to make your payments on time, you can set up automatic payments through your bank or credit card company.
- Use a mix of different types of credit. Lenders like to see borrowers who can handle different types of credit responsibly. Therefore, using a mix of different types of credit can help boost your creditworthiness. Some examples of different types of credit include revolving credit (credit cards) and installment loans (personal loans).
- Have history of responsible credit use. If you have been using credit responsibly for a long period of time, it will likely boost your chances of being approved for new lines of credit in the future.
What to consider before applying for a New Credit Card
Understanding which credit card is right for you and your financial goals is important when applying for a new card. Be mindful that opening a new credit card could result in a hard inquiry on your credit report, which could briefly dip your score.
However, using your credit card wisely and responsibly could help increase your overall credit score by building up your payment history, improving your credit mix, and increasing your availablecredit line.
My USA Finance can help you compare different credit cards and monitor your credit score easily all in one place.
