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- If used responsibly, credit cards can have a positive impact on your credit score in the long term.
- The two biggest factors that determine your credit score are payment history and credit utilization.
- Looking to build credit? Consider the options for the best first credit card.
The Short-Term Impact of Credit Card Applications
When you apply for a credit card, the lender performs a hard inquiry on your credit report to assess your creditworthiness. This hard inquiry can temporarily lower your credit score by a few points. The impact is usually minor and relatively short-lived, typically lasting for about a year, though the inquiry will remain on your report for two years. If you apply multiple times within a short period, this can compound the effect and signal to lenders that you may be a higher credit risk.
Long-Term Effects on Your Credit Score
Building a Positive Credit History
Successfully obtaining a credit card and using it responsibly can have a positive long-term effect on your credit score. Regular, on-time payments and maintaining low credit utilization can improve your creditworthiness over time.
Diversification of Credit Mix
Adding a credit card to your financial portfolio can diversify your types of credit, which is a factor in credit scoring models. This diversification can positively impact your score, assuming you manage the credit card well.
How to Minimize the Negative Impact
To minimize the negative impact of credit card applications, research cards ahead of time to and stick to those you’re more likely to qualify for. Also, limit the number of applications you submit within a short timeframe to avoid multiple hard inquiries. If you can improve other aspects of your credit profile, like paying down existing debt, you can help offset the small dip caused by a new application.
Strategic Considerations Before Applying
Check Your Credit Score and Report
Knowing your credit score and reviewing your credit report for errors before you apply will help you identify credit cards that match your creditworthiness, reducing the chances of your application getting denied.
Understand the Lender’s Requirements
Many credit card issuers provide information on the credit scores you’d need for approval. Look for pre-approval or pre-qualification offers that do not involve a hard inquiry to gauge your chances without affecting your score.
FAQs
A single credit card application might lower your credit score by 5 to 10 points temporarily. The exact impact varies based on your overall credit history.
Applying for multiple credit cards in a short period can signal financial distress to lenders and may have a negative cumulative impact on your credit score.
The impact of a hard inquiry typically lasts for about 12 months, though the inquiry itself will remain on your credit report for two years.
Pre-qualification offers from credit card companies can indicate approval odds without conducting a hard inquiry, thus not affecting your score.
The denial itself doesn’t hurt your credit score, but the hard inquiry made during the application process can have a temporary negative effect.
