Getting A New Credit Card: Will It Improve or Harm My Credit?

Getting A New Credit Card: Will It Improve or Harm My Credit?
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Point Editorial

Opening (and closing) a credit card account can both boost and hurt your credit. Whether it is beneficial or not depends on your current credit score.

Before applying for a credit card, there are a few things you should consider. Do you have good or even excellent credit? Can you afford any annual fees? Are you planning on applying for a mortgage or a vehicle loan soon? You might choose to hold off on a new card and keep your score stable so that you have higher approval odds if you have big purchases to make in the near future. 

Credit cards are incredibly popular. They’re easy to carry, and the level of convenience they offer when making purchases or transferring money is hard to beat. For better or for worse, a banking card is practically a necessity. 

Read on to learn more about how a credit card can be both advantageous and disadvantageous to your credit score, as well as whether opening a new account is right for you. 

Factors to consider

Payment history

Payment history is the most significant factor in calculating your credit score, accounting for 35 percent of your credit score. Late payments and missed payments can seriously harm your standing, especially if this behavior persists. 

Debt-to-credit ratio

Your debit-to-credit ratio, or credit utilization, is the second most significant factor at 30 percent. This refers to how much outstanding credit card debt you have compared to how much total available credit you have concerning your credit card. If this ratio exceeds 30 percent, it’ll negatively impact your score.

Length of credit history

Any credit activity becomes a part of your history. Building up this history proves how responsibly you can handle money. On average, individuals with good credit scores have had their credit cards for more than ten years. Your credit history composes 15 percent of your score. 

New credit

New accounts make up 10 percent of your score. It’s typical for your score to drop slightly when opening a new credit account because creditors perform a credit inquiry into your score. 

Credit mixes

Also accounting for 10 percent, credit diversification allows banks and other lenders to see how you handle a variety of credit accounts. Credit mixes encompass credit cards, mortgages, car loans, and student loans. 

Just because a mix of credit plays a role in generating your score doesn’t mean you should apply for everything. Be selective and only apply for the credit you’re qualified for and that can aid you in building up your wealth.

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How opening a new credit card can improve your credit

One: New accounts improve your credit mix. Diversification looks good in your file. It shows banks and lenders that you’re capable of managing multiple types of credit. Opening and using your new credit card responsibly can make it easier to get a personal loan since your history and current behavior will prove your capabilities. 

However, if you already have multiple credit card accounts, opening another won’t impact your score as much. 

Two: Remember, payment history is the single biggest factor in your credit score calculations. Being approved for a new credit card allows you to build your overall credit history of on-time payments from month to month. 

Three: Your credit utilization rate could decrease. Prudently using your new card can help you establish a healthier track record. Not only will this give you an additional line of credit and access to borrowing money, but a larger credit limit means that you won’t exceed that threshold as quickly. 

How opening a new credit card can harm your credit

One: New accounts lower the average age of your accounts. Newer accounts can cause your score to drop temporarily since the length of your credit history impacts your score. Typically, the longer you keep an active account, the more it’ll boost your score in the long run. 

Two: Hard inquiries. Each time you file an application, like a mortgage or a new credit card, banks and lenders conduct a hard inquiry or a “hard pull” and look up your credit score. Hard inquiries influence your score—especially if they occur frequently within a short period. They remain in your credit history for two years. So, it’s best not to apply for too many financial ventures, and specifically for credit cards, unless necessary. 

Three: High credit utilization. How you use your credit card can lead to a drop in your score. Credit utilization is the second most significant factor in calculating your score, and having a high balance or exceeding your credit limit can be detrimental. You probably have too many credit cards if you’re not able to manage the payments on several loans at once. Experts recommend keeping your utilization under 30 percent to avoid this issue. 

How to use your credit card to improve your score

Owning a credit card can be a strategic way to improve your credit score over time. Outlined below are four steps you can take to make sure your score is improving. 

Step 1: Make payments on time. It’s crucial to send in your monthly payments by the due date, whether you decide to pay off your balance in full or make the minimum payment. Setting up automatic payments can help ease the stress of missing these deadlines. 

Step 2: Pay off balances each month. Expanding on step one, it is always better to pay off your entire credit card balance instead of carrying it over from month to month. The latter will incur interest and your credit utilization will increase. Always keep track of how much you’re putting on your card.

Step 3: Keep balances low. If possible, reserving your card for smaller purchases will keep your balance below the predetermined limit so that you can pay it off. 

Step 4: Create a credit card budget. Prioritizing necessary expenses like rent, car payments, and groceries will certainly help. Staying out of debt may mean cutting back on unnecessary purchases and spending within your means for a period. Both your credit score and your future self will thank you. 

Is a new credit card suitable for you?

Credit cards are worthwhile in many ways. 

They are convenient to use and easier to carry than cash. A large majority of cards offer some form of fraud protection as well, functioning as a safe and reliable bridge to your finances.

In addition to helping you borrow money, credit cards provide a grace period that gives you time to save money in order to make your monthly repayments. Many major credit card companies also offer reward programs, such as cash-back points, air miles, and discounts at specific retailers. 

You’re eligible for a free credit score report from any of the three major credit bureaus, Experian, Equifax, and TransUnion, so it is best to take advantage of that when you can. 

Inquiries into your own credit, known as a soft inquiry, don’t impact your score. Always take your time to be aware and understand your current financial situation before making any big financial decisions, even if you know that opening a new credit card account can boost your score and build your history.

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Point Editorial
A group of writers, thinkers, & designers from varying backgrounds — all part of the Point Card team. Sharing perspectives on concepts in design, finance, and culture through an everyday lens.
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