What happens to your credit score if you open a new credit card?

Wondering what impact a new credit card will have on your credit score? Here’s what you need to know.

Key points

• Applying for a new credit card means having a thorough investigation of your credit report.
• Despite this small hit, a new credit card could actually help improve your credit score.

There may come a time when you decide to open a new credit card. Perhaps there is a card with a generous sign-up bonus. Or maybe you want a credit card that offers travel rewards.

If you’re considering opening a new credit card, be aware that it could cause your credit score to drop slightly. But in the long run, a new credit card might actually improve your score.

A small drop in credit score initially

Every time you apply for a loan or credit card, it counts as a serious inquiry on your credit report. One serious inquiry won’t do much damage to your credit. If anything, you should expect a 5-10 point drop.

Now, if your credit score isn’t very strong and you’re preparing to apply for a large loan, such as a mortgage, you may want to hold off on applying for a new credit card until that loan is in effect. square. You need a minimum credit score of 620 to get a conventional mortgage, so if your score is 624, one serious inquiry could drop it below that threshold. But if your score is 720, a 5-10 point success shouldn’t matter.

A new credit card could also hurt your credit score a bit by lowering the average age of your open accounts. If you have seven credit cards, which you’ve kept for 10 years or more, opening a new card probably won’t hurt your score all that much. But if you’ve only had two cards open for a while, your score could suffer in the short term when you open a new card.

A long-term benefit

If you’re not building up a huge balance on your new credit card, opening it up might actually help your credit score improve over time. An important factor that goes into calculating your score is your credit utilization rate. This ratio measures how much of your total available credit you’re using at a time, and it carries more weight in calculating your score than the length of your credit history.

Let’s say you currently have a total spending limit of $10,000 on all your cards and you have a balance of $3,500. This puts you at 35% utilization, which is quite high and likely to hurt your score (a ratio of 30% or less, on the other hand, is good for your score). If you were to open a new credit card with a $3,000 limit, suddenly your credit utilization rate would drop to 27%.

Should you apply for a new credit card?

There are many reasons why you might want a new credit card, from a better rewards program to more flexibility for emergency spending. Although opening a new credit card may initially hurt your credit score, this impact should be minor. And you can more than compensate by increasing your total credit limit.