How much does your credit score change when applying for a credit card?

The Credit Card Application Score Sway: How Applying Impacts Your Credit

Applying for a new credit card is a common financial move, whether you’re seeking rewards, building credit, or simply looking for an alternative payment method. But lurking in the back of many applicant’s minds is the question: “How will this affect my credit score?” The good news is that while applying for a credit card can impact your score, the effect is usually small and fleeting.

The primary reason for this temporary dip is the “hard inquiry” that occurs when a lender checks your credit report. Think of it like this: when you apply for a credit card, the issuer needs to assess your creditworthiness – your ability to repay borrowed money. To do so, they request your credit report from one or more of the major credit bureaus (Equifax, Experian, and TransUnion). This request registers as a hard inquiry on your credit report.

Why Hard Inquiries Matter (A Little)

Lenders see hard inquiries as a signal. A single inquiry suggests you’re exploring credit options, which is perfectly normal. However, a flurry of hard inquiries within a short period can raise red flags. It might suggest you’re desperately seeking credit and potentially struggling financially. This is because lenders might interpret this as a sign that you’re taking on too much debt, increasing their risk if they lend to you.

The Minimal Impact: What to Expect

For most people, the impact of a single hard inquiry from a credit card application is negligible. Expect a decrease of just a few points on your credit score. It’s unlikely to drastically change your creditworthiness, especially if you have a healthy credit history and are responsible with your existing credit accounts.

The Temporary Nature of the Downturn

The best part? The negative impact of a hard inquiry is temporary. Generally, the effect diminishes over time and disappears completely within a couple of years. For most, the points lost will be regained within a few months, particularly if you continue to practice good credit habits like paying your bills on time and keeping your credit utilization low (the amount of credit you’re using compared to your total available credit).

Important Considerations:

• Rate Shopping: When shopping around for the best mortgage or auto loan rates, multiple inquiries within a short period (usually 14-45 days) are often treated as a single inquiry. This is because credit scoring models recognize you’re comparing options for the same loan. However, this doesn’t apply to credit card applications.
• Existing Credit Health: Your overall credit health plays a significant role in how a hard inquiry affects your score. If you have a strong credit history, the impact will be even less noticeable. However, if you have a limited credit history or a few negative marks, the inquiry might have a slightly more pronounced effect.
• Avoid Applying for Too Many Cards at Once: Spreading out your credit card applications is a smart strategy. Avoid applying for multiple cards simultaneously to prevent a cluster of hard inquiries.

The Takeaway:

Don’t let the fear of a slight, temporary dip in your credit score deter you from applying for a credit card that could benefit you. Focus on building a solid credit history by making timely payments, keeping your credit utilization low, and avoiding unnecessary debt. In the long run, these good credit habits will far outweigh the minimal and temporary impact of a credit card application. Just remember to be mindful of how often you apply and spread out those applications over time to minimize any potential negative effects.