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Why Do Multiple Credit Card Applications Hurt My Credit Score?

Applying for several credit cards in a short period dents your score because lenders view it as high-risk behavior.
June 24, 2016
Credit Card Basics, Credit Cards, Credit Score, Personal Finance
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You need to get credit in order to build a good credit score. One way to do this is by getting a credit card and using it responsibly. But what many consumers don’t know is that multiple credit card applications in a short time will hurt their credit scores.

Why is this the case, and how can you make sure you’re applying for credit strategically?

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Know how inquiries affect your score

It’s important to understand how applications for new credit affect your credit score, so here’s a quick explanation: A portion of your credit score (whether the dominant FICO score or its rival, VantageScore) is determined by new credit inquiries. A credit “inquiry” is any review of your credit profile, but only so-called “hard inquiries” can affect your credit score. A hard credit inquiry is performed whenever you apply for a loan or credit card, and it will stay on your credit report for up to two years.

Most people regain lost points within about six months, but if your credit was poor to begin with, those points might really count.

Every hard credit inquiry can cause your credit score to drop by a few points. Most people regain these points within about six months of a loan or credit card application, but if your credit score was poor to begin with, those points might really count. This is important to keep in mind before submitting any type of application to borrow money.

Too many credit card applications indicates risk

While applications for both loans and credit cards will land on your credit report and cause your score to dip a bit, many consumers don’t realize that not all hard inquiries are created equal. To explain this, let’s use a common scenario: You want to get a mortgage, but you’re not sure which lender will give you the best interest rate. To find out, you apply for a home loan at five different banks in a single week.

Theoretically, this should cause your credit score to take a hit — five inquiries is a lot. But actually, as far as your credit score goes, this will only count as one inquiry.

Shopping around for installment loans — a mortgage or car loan — typically counts as one inquiry.

Credit card applications are a whole different ballgame. Several different inquires for new plastic in a short span of time will cause your credit score to drop significantly. That’s because multiple applications for cards in a short span could suggest you are a riskier borrower than one who applies less. (In the case of a mortgage, it’s reasonable to assume that multiple inquiries in a short time mean you are shopping for one mortgage, not intending to take out several. But people can and do get multiple credit cards.)

Remember, your credit score is meant to predict how dependable you’ll be with borrowed money. If you’re showing a behavior that’s correlated with mismanaging credit, your score will drop to reflect this.

If you’ve already applied for too many cards at once, your score will bounce back. Just be sure you pay on time and keep balances low. And wait six months to a year before you apply for another one.

Want to try out a few scenarios about applying for credit and how it might affect your score? As part of NerdWallet’s free credit score tool, you can use the credit score simulator to estimate the effect of various actions.

This article updated Nov. 16, 2016.