Have you ever wondered what effect opening a credit card will have on your credit score? When some people find an attractive credit card offer, they may be hesitant to apply for it out of concern that doing so could hurt their credit score.

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How a New Credit Card Account Affects Your Credit Score

When you open a new credit card account, it can have several effects on your credit score.

First, the credit issuer will check your credit score and report when you apply for the account — this hard inquiry can cause the score to drop by a few points temporarily. if you’re approved, your use of the new account will be reported to the major national credit bureaus.

Over time, this new account will add to your credit history. If you manage this new credit card account responsibly by paying your bills on time each month and carrying little debt, then it will add to your good credit history and can benefit your credit score.

Also, opening a credit card can lower your debt to credit ratio, also known as the credit utilization ratio. This is the total amount of your debt divided by the total amount of credit you’ve been extended, and it’s an important factor in your credit score. Say that you double your credit lines from $5,000 to $10,000, but you simply spread out your current spending of about $1,000 per month across those two credit cards. This would improve your utilization ratio, meaning that you’re spending $1,000 out of $10,000 available to you, for a utilization of 10% instead of 20% when you had $5,000 available.

How Opening a Credit Card Could Hurt Your Credit Score

Despite all of the ways that a new credit card can help your credit score, there’s always the potential for it to hurt your score under certain circumstances.

For example, if you were to open up several new lines of credit in a short period of time, you may see a drop in your score. Applying for several new credit cards could be seen as a sign of riskier spending, and the credit scoring formulas could penalize consumers for opening multiple accounts within a few months’ time.

Also, if having a new credit card account leads directly to incurring more debt, then your credit score also can suffer. And, finally, if having too many accounts causes you to make late payments, then that could hurt your credit score.

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Bottom Line

One of the keys to having an excellent credit score is to establish a history of paying your bills on time, and carrying very little debt. The next time you see a competitive offer for a credit card, you can consider how the application will impact your credit score when deciding whether to apply.

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