Opening a new credit card account could lower or hurt your credit score in the short term, because it requires a hard inquiry on your credit. Over time, though, it can help build a better credit history if you pay it on time and carry minimal debt.

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 a few points temporarily. But, 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.

Those are far from the only ways that opening a credit card can potentially impact your credit score. Here’s how opening a credit card can impact your credit score:

1. Opening a Credit Card to Boost Your Credit Score

2. How Opening a Credit Card Could Hurt Your Credit Score

3. How Credit Cards Can Help You Build Good Credit

1. Opening a Credit Card to Boost Your Credit Score

A credit card, or rather your responsible handling of your finances, can help build a good score. You may even want to consider having more than one credit card. An important credit score component, amounts owed, typically makes up 30 percent of your overall score. This component addresses your debt-to-credit ratio, or utilization rate. So if you have only one card and use a lot of your credit, your score may be negatively affected.

How many credit cards do you need to build credit? The answer depends on your credit utilization and how much credit you need, so consider the ratio of how much you spend compared to how much credit is available to you on your card, or cards — this is also known as the credit utilization ratio.

Opening a credit card can lower your debt to credit ratio. 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 percent instead of 20 percent when you had $5,000 available.

But using more credit could make you less likely to pay back what you’ve borrowed. A high utilization ratio fits the profile of someone who might be “living on credit.” That’s a fiscally dangerous way to live, and a high risk for potential lenders.

The simplest way to lower your utilization is to pay down your debts. Often, people will ask for credit limit increases on existing cards, which may have the effect of lowering their utilization ratio, but this can negatively affect their score as higher credit limits are often seen as more risky in general. You should only ask for credit limit increases when there is a real need and if you are able to pay down your balances in a timely manner.

Remember that you shouldn’t use all your available credit — just let it help you build up and maintain your score.

2. 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 to incurring more debt, then your credit score also can suffer. And if having too many accounts causes you to make late payments, then that could hurt your credit score.

3. How Credit Cards Can Help You Build Good Credit

When you build an excellent credit history by using your credit card responsibly and paying your bills on time each month, it could open up an opportunity to get a credit card that provides an excellent cashback rewards program.

Some cards offer cash bonuses just for signing up, some offer cash rewards that never expire and some double up on airline mileage. If you’re looking to save money, and drive the best deals, the cash back feature may be the most important.

Some consumers with excellent credit can find credit cards that come with no annual fee. Others will slip in an annual fee after a year or following some other introductory period.

If you’ve got an excellent credit score, you may score a lower interest rate on your card, or have more reward options. Having excellent credit gives you more choices. As you research credit cards, remember that the best cards tend to offer the best overall benefits that are most valuable to you, relative to the cost.

The 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. And as you build excellent credit, you can start to reap the benefits in terms of more flexible personal financial tools.

Originally published September 14, 2017

Updated June 12, 2020

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