Does Applying for a Credit Card Hurt Your Credit Score?

Does applying for a credit card hurt your credit score? The short answer is: maybe. A new application typically triggers a hard inquiry, which can cause a small, temporary dip in your score.

How much of a dip – if any – depends largely on your current score and how long you've had credit. Either way, the effects are usually short-lived, especially if you make your payments on time.

In this article, we explain how and why your credit score may drop after a new credit card application, list the ways these applications can help your score, and offer more information to help you understand these effects.

Your credit score might drop after applying for a credit card

Opening a new credit card can be exciting, but it also adds more financial responsibility – and it can lower your credit score a little bit. That's because credit card issuers may pull your credit score using a hard inquiry.

Hard inquiries give card issuers a complete picture of your financial history, including when you've applied for credit in the past. It also means this credit card application will appear on future credit reports.

Equifax can keep hard inquiries on your credit profile for up to 3 years, and TransUnion keeps them for up to 6 years. But fortunately, the effect usually fades much sooner.

As long as you don't frequently apply for credit, your credit score should recover.

But it's important to note: Applying for a credit card can have a bigger impact on your credit score if you have a shorter credit history or a lower score to begin with. If you have a longer credit history and a strong score, the impact is generally smaller.

Hard credit check vs. soft credit check

Instead of a hard check, a lender may sometimes use a soft credit check, which doesn't affect your credit score.

Soft checks can happen when:

• You check your own credit
• A lender is considering you for pre-approval
• Someone accesses your credit information for a non-lending reason, like a rental application

If you're applying for credit or another financial product, the lender or financial institution will usually do a hard credit check that does affect your credit score. That's because they'll pull your entire credit report, an action that's added to the credit report itself.

Depending on your score and credit history, you might see your score drop a little after a hard credit check. But your score won't change with a soft one.

Ways a new card can help your credit score

Getting approved for a new credit card helps your credit score by lowering your credit utilization ratio – that is, the amount of credit you have available increases, which decreases the total percentage of credit you're using overall.

Lowering credit utilization can have a positive impact on your overall credit score.

Remember: This won't apply if you open a new credit account and then max out the card.

Ways a new card can hurt your credit score

Yes, a hard credit pull can temporarily harm your score, but there are other ways that a new credit card can ding your credit. If you apply for a credit card with a bad credit score:

• A new card will lower your average credit age, which may temporarily have a negative effect on your credit score.
• If you rack up debt on the new card, your credit utilization ratio can increase, which can negatively impact your score.

To protect your credit score, try to spend only what you can comfortably pay off each month. Carrying a balance means paying interest, which can make your debt harder to manage over time.

Things to consider before applying

Before you decide to add some shiny new plastic to your wallet, consider these details:

• Your credit score
• Your credit report
• Your credit card balance
• Your payment history
• Your existing cards
• Your income level

1. Your current credit score

If your credit score isn't ideal, it's a good idea to work on improving it before applying for a new credit card. Here's how credit scores in Canada are classified:

• 760 – 900: Excellent
• 725 – 759: Very Good
• 660 – 724: Good
• 560 – 659: Fair
• 300 – 559: Poor

If you're set on getting that new card, and you're willing to put the work in to improve your score, here are a few tips:

• Pay your credit card bills on time, every time.
• Keep your credit utilization under 30%. Anything higher, and your score starts to decline – which can be seen as a sign of financial stress.
• Make more than the minimum payment every month.

2. Your credit report

We all make mistakes – even the credit bureaus. Therefore, it's important to review your credit report every year to ensure there are no errors on your account.

Even catching a small mistake and correcting it can have a significant impact on your score.

3. Your current balance

If you carry a large balance on a credit card you already have and you don't/can't pay it off every month, chances are you're spending more than you're bringing in.

Make smart money moves by budgeting your spending. You can still use credit cards to earn extra rewards, but don't spend more than you're ready to pay.

4. Your payment history

Set up a reminder on your phone, download a bill reminder app – anything to make sure you pay your bills on time every month. Nothing hurts your credit score faster than missed payments.

If you can, pay more than the minimum payment to make a dent in your balance – not just the interest.

5. Your existing credit cards

Keeping cards with a lengthy history is good for your credit score. While it might be tempting to close that student credit card you got when you were 18, give it a second thought.

As long as you're not paying an annual fee and use it occasionally, keeping old cards/accounts open will work in your favour.

6. Your income

One of the easiest ways to get denied for a credit card is by overstating your income. Look at your last T4 and use that information truthfully.

Plus, while the bank does care how much you make (since it shows your ability to pay off your balance), they also care about your character. Things could look fishy if you fib about how much you make.

FAQ

Does applying for credit cards ruin credit score?

Applying for credit cards won't have a long-term impact on your credit score unless you already have pretty poor credit and you frequently apply for multiple credit cards. Credit bureaus see repeated requests for new credit as a red flag, and your score can drop accordingly.

How much will your credit score drop if you apply for a credit card?

The extent to which your credit score could drop depends on your current score and length of credit history. If you have a strong score and a longer credit history, a new inquiry probably won't affect you as much as it would if you have a shorter history or lower score.

Is there a downside to applying for credit cards?

Your credit score can drop slightly when you apply for a new credit card, and opening too many new credit cards makes it easier to fall into debt. You should only apply for credit cards if you know you'll be able to use them responsibly.

What is the biggest killer of credit scores?

Your payment history is the biggest factor in determining your credit score. Making late payments or missing payments altogether is one of the fastest ways to ruin a credit score. In these situations, late fees pile up and make repayment even harder.

Does checking your credit score lower it?

No, checking your own credit score doesn't affect your actual score, so feel free to keep tabs on it. Your score may only take a small hit when a lender checks your credit as part of a credit application, but the effect is minimal.