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What Happens to My Credit Score When I Get a New Credit Card?

Sept. 30, 2016
Credit Cards, Credit Score, Personal Finance
New Credit Card
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Whether you’re applying for your first credit card or adding another one to your wallet, getting a new credit card is a surefire way to build your credit history. But a new card can also hurt your credit score if you’re not careful.

Here’s a look at some best practices that will protect your credit score when you apply for and use new plastic.

Apply for one card at a time

Upon receiving your application for a new credit card, an issuer will “pull your credit” to get a better sense of your borrowing history and, if your application is approved, to determine your card’s interest rates. Every inquiry shaves a few points off your credit score, which is why it’s a good idea to apply for only one card at a time.

That also means doing your research before committing to a particular card. Don’t be tempted by the first rewards-laden offer you come across. If there’s a second credit card that looks really appealing, wait about six months before applying for it.

Know your new credit utilization ratio

Credit reporting bureaus look at several factors when calculating your credit score. One of the major factors considered is how much of your available credit you’re using. It’s best to keep your credit utilization ratio under 30% of your monthly limit. Anything above that makes it look like you’re overextending on your credit, which increases the risk that you won’t be able to pay it back on time.

If your original card has a monthly limit of $1,000 and your second card starts with a $500 limit, know that your preferred utilization amount has changed from $300 to $450. However, staying closer to that $300 mark by cutting back on how often you use your second card (only for emergencies, for example) will put you well below your credit utilization limit. Over time, this will give your credit score a boost.

Keep your original account open

Credit card issuers prefer customers with extended experience managing at least one line of credit. Therefore, the longer you keep each credit card account open, the better your credit score will be.

Although a new credit card will inevitably lower the average age of accounts, you can minimize the toll that that takes on your credit score by keeping older credit card accounts open. In fact, splitting your usual charges among cards helps keep utilization lower on each. Just be sure to stay on top of payments — paying on time has a much bigger effect on your score than age of accounts.

The takeaway

It’s only natural to want to upgrade to a better credit card if your original one has high rates and lacks rewards. To avoid damaging your credit score, make note of these tips when looking for a new card. Only apply for one card at a time, keep your old credit line open, and be aware of how your new card changes your credit utilization ratio.

This article was updated Sept. 30, 2016.