Does Opening A Credit Card Hurt Your Credit Score?
How many credit cards is too many? Is it good to have multiple credit cards? You may think that it's best to have only one or two credit cards, stick with them and keep on top of them for the greatest advantage to your credit rating.
While there is some truth in that concept, you may be surprised to know that it's also a good idea to add to your credit portfolio from time to time as long as you can do so responsibly.
In this article, we will discuss the ways in which applying for a credit card can help and sometimes hurt your credit rating. We will also offer sound advice on generally safeguarding your credit rating.
Does Applying For Credit Card Affect Your Score?
When you submit an application for a new credit card, your credit rating may decrease by as much as 20 points. It may decrease by five points more if and when the account is opened. This is not something you have to worry about.
As long as you manage this new account properly, this will just be a temporary setback of no more than 90 days. This is why it's not a good idea to apply for a credit card when you know that you are just about to apply for an important loan such as the car loan or mortgage.
Time your applications in a way that will allow you to get the easiest approval and take the most advantage of your good credit rating. For example, you should be very careful not to apply for several different credit cards thinking that you'll simply select the one with the best deal and reject the rest.
Unfortunately, it doesn't work that way. When you apply for multiple credit card accounts, it simply looks as if either been denied multiple times for you're preparing for a spending spree! This does not help your credit rating.
Don’t apply for credit without good reason. Although having unused credit can benefit your overall credit rating, FICO consumer credit specialists advise that you should only open a new credit account when you need it.
The reason for this is that the timing file or average age of the accounts included on your credit report is a big factor in determining your rating. People who have very high credit ratings have generally held their accounts in good standing for over 10 years.
If you open new accounts frequently, you lower the average age of your credit accounts. This can have a very negative effect on your credit rating.
It’s easy to see that maintaining a sound credit rating is a multifaceted task. Attention to every aspect of your credit rating is key to keeping it healthy. Here are a dozen smart tips to help you keep your credit rating in good order so that even if you lose a few points when applying for new credit, that loss will not too much damage.
Reviews Of Popular Cards:
Best Way To Build Credit With A Credit Card
Here are 12 ways on how to build credit with a credit card.
- Plan carefully before applying for important financing such as a mortgage or car loan. Do not apply for credit cards within the six months prior to making your loan application.
- Do your homework! Find out which credit cards offer the best deals by researching rather than by applying for them.
- Don't accept every credit card offer that comes your way! In fact, be very choosy and apply for credit very seldom. Remember that department store cards and cards from finance companies are usually issued by subprime lenders. Holding these types of cards can negatively affect your overall credit rating.
- Only apply for new credit if you absolutely must. If you are in need of more credit, discuss a limit increase with your current creditors.
- Avoid needing credit! Remember that using credit excessively (more than 30% of your total available credit) has a negative impact on your credit rating.
- Make good use of free credit score services to keep track of your credit rating. Take note of any errors and correct them as soon as you see them.
- Only apply for new credit when you know that your credit rating is about 620. Most credit card companies look for a rating of around 650. Applying and being denied negatively impacts your credit rating and gains you nothing.
- Be mindful of the credit utilization ratio. Simply put, this is the percentage of your credit that you use, and it accounts for about a third of your credit score. If you max out your credit accounts, it makes you a high risk and lowers your credit scores. If you use more than 35% of your available credit, it can have a very negative impact on your overall credit rating.
- Always pay all of your bills in a timely manner. If you miss even a single credit card payment by as little as a few hours, it can greatly increase the amount of interest you pay. Paying all of your bills on time or even early is one of the most important things you can do to keep your credit rating high.
- Keep your old accounts open. As your credit improves and you are able to secure accounts with better terms and interests, you may be tempted to close your old accounts; however, this would be a bad idea. Your older accounts help improve both the average age of your credit history and your credit utilization ratio. By holding onto these old cards and using them for small occasional purchases that you pay off quickly, you can greatly improve your overall credit rating. Remember that the length of your credit history accounts for 15% of your entire credit score.
- Be careful of the company you keep. If you have an excellent credit rating, you may be approached by friends and relations who need a cosigner on a loan. Remember that when you cosign, you are accepting responsibility for that loan in case the other person defaults. If this does happen, it can affect your credit score very negatively because the lender will not inform you immediately. In fact, as much as three months may pass before you know the loan is in arrears. If you do cosign for anyone, make certain that the bills and statements are sent to you so that you can keep tabs.
- Avoid job hopping. Remember that credit card issuers are looking for a good risk. If you're constantly hopping from one job to another, you may tend to give the impression that you don't have the ability to repay. While it's always a good idea to move up and improve your lot in life, try not to do it more than once or twice a year.
Does Getting A New Credit Card Hurt Your Credit Score?
The bottom line is, it all averages out. There are many factors that come together to create your credit score. It's important to realize that paying consistent attention to all of these factors is necessary to keep your score generally high.
While it is true that applying for credit can lower your score by a few points temporarily, this is certainly not something that you should focus a great deal of attention on.
Understand that creating good financial habits and maintaining them in a consistent fashion will more than counterbalance a small amount of temporary damage a credit application might do.