Sometimes the biggest progress comes after a setback. In the world of finances, credit cards are the key to good credit, but did you know applying for them could take a few points off your credit score? Even though applying for a credit card can hurt your score in the short term, getting approved can pay off in the long run. Follow these tips to minimize your hits and maximize your gains.
In the short term, applying for a credit card can cause a slight drop in your credit score. Applications for credit cards — called hard inquiries on your credit report — will take, on average, less than five points off of your credit score. This in and of itself won’t make the difference between a good credit score and a bad one (after all, the maximum FICO score is 850 points), but you’ll still want to avoid applying for too many credit cards at one time. Doing so may drop your score further and cause you to be viewed by potential lenders as a risky candidate for credit.
In the long term, though, applying for a credit card can be a rewarding financial move. Once you start charging purchases on your card and subsequently paying them off in a timely manner, you’ll begin to build credit. The higher your score climbs, the more likely you’ll be to get approved for credit cards and loans — and at lower interest rates. Having good credit is practically an essential qualification if you’re looking to buy a car, rent an apartment or purchase a home.
What to do
Now that you know the benefits (and risks) of applying for a credit card, you’re ready to start applying. Follow these tips to ensure your credit card application process is as streamlined as possible.
- Examine your situation. Before applying, spend some time deciding whether now is the right time to open a new credit card account. Will you be able to pay off the bill? Will the new line of credit have a positive impact on your FICO score?
- Research before you apply. If you determine you’re ready, compare available cards online. Take a look at the best credit cards of 2014 as you narrow down which ones will work for you.
- Spread out inquiries. Finally, when it comes time to submit your inquiry, don’t send in too many credit card applications at once. If you want to apply for more than one account, spread out your requests by at least six months. This will minimize the ding to your FICO score.
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