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Does applying for a credit card hurt your credit?

Yahoo Personal Finance· Getty Images
Updated 6 min read

Whether you're inspired by travel influencers on TikTok who post luxurious trips paid for with credit card points or simply want to earn cash back on groceries, you may be in the market for a new credit card. There are many cash-back, travel and rewards credit cards that offer robust perks to choose from.

With so many great cards available, you may be curious how getting a new card will affect you. Does applying for a credit card hurt your credit score? Yes — but there are ways to reduce the impact on your credit.

If you're considering applying for a new card, submitting applications can negatively affect your credit score for the following three reasons:

When you submit your application for a new credit card, the card issuer will ask for your consent for a hard credit check. Hard credit inquiries occur when a creditor reviews your full credit report to determine your responsibility as a borrower and the risk of you not keeping up with your payments.

Every time a hard credit inquiry occurs, your credit score will decrease. For most people, hard credit inquiries will cause your score to drop by fewer than five points, but the exact impact varies based on the length of your credit history and the number of credit accounts you have.

Inquiries from the past 12 months determine your score, but hard credit checks stay on your credit report for two years.

If the issuer approves your credit card application, you'll have a new credit account on your credit report.

New credit accounts for about 10% of your FICO credit score, the most commonly used credit scoring model.

If you've opened several new credit accounts within a few months, creditors may be concerned that you're overextending yourself and will struggle to afford future payments. Opening a new credit account lowers the overall average age of your accounts, impacting your credit.

If your credit report is relatively thin, meaning you only have information from five years or less, opening a new account will have more impact. By contrast, opening a new card will have less effect if you have a lengthy credit history.

When you open a new credit card, you want to take advantage of its rewards and benefits. However, chasing those perks could cause you to rack up balance. If you use a significant portion of your available credit — such as 30% of your credit limit or more — your credit utilization increases and your credit score will drop.

Can applying for a credit card hurt your credit? Yes, but a new card may benefit your credit score over time for the following reasons:

Your credit mix — how many types of credit accounts you have — makes up a small portion of your FICO credit score. Creditors like to see that you can juggle multiple forms of debt, such as credit cards, home mortgages, and installment loans.

If you don't have other credit cards, getting approved for a new card can improve your credit mix and result in a modest boost to your credit score.

When a credit card issuer approves your application, it will determine your credit or spending limit for your new card. With a new credit limit, your credit utilization — how much of your available credit you use — may improve.

For example, let's say you have a cash-back credit card — like the Capital One Quicksilver Cash Rewards Credit Card or Blue Cash Everyday? Card from American Express — with a $2,500 credit limit. Your current balance is $2,000. Right now, your credit utilization is 80%, and such a high percentage can negatively affect your credit.

But let's say you apply for a new credit card. You qualify for a new card with a $3,000 limit, and you charge $250 to it. Combined with your other card, you're using $2,250 (the balances of the two cards) of your total $5,500 credit limit, giving you a credit utilization of 41%.

A 41% credit utilization is still high, but it's a significant improvement over your previous percentage, so your credit score may increase.

Your payment history is the most important factor in determining your credit score; it makes up 35% of your FICO score. As you make your credit card payments on time, you establish a positive payment history and boost your credit.

Although applying for a new credit card can negatively affect your credit score, you can take some steps to minimize the impact and protect your credit:

Credit card companies and lenders make it easy to apply for credit online. Although it may be tempting to submit your information to find out if you'd qualify for that new card or loan, but only fill out an application when you need a new card or loan.

Think about your spending and budget before submitting any new card application. For example, maybe you’re offered a great deal on a United Quest? Card at the airport, but you usually fly on different airlines or prefer to drive. Instead of applying for that card, it could pay to look into a more general travel card, like the Capital One Venture Rewards Credit Card or Chase Sapphire Preferred? Card (our top Chase pick). Even if a credit card is appealing initially, it may not offer the best long-term benefits for your spending habits.

Carefully choosing when to apply for credit prevents unnecessary hard credit inquiries.

If you apply for a new card, take advantage of credit card companies' prequalification tools first. Many issuers allow you to use these tools to find out if you're likely to qualify for the card, and they only use a soft credit check, which doesn't affect your credit score.

If you’re new to credit, you may also want to consider options for alternative approval processes, like the Petal? 2 "Cash Back, No Fees" Visa? Credit Card, or that require no credit check to apply, like the OpenSky? Secured Visa? Credit Card.

Once you've narrowed down your list of potential cards and the likelihood of qualifying, you can decide which card to move forward with and apply.

Before applying for a new credit card, consider what other goals or major purchases you may have coming up in the near future. For example, if you're thinking of buying a home within the next six to 12 months, you want your credit score to be as high as possible so you can qualify for a mortgage with competitive rates.

To ensure your credit is in the best place, it may be wise to delay new credit applications until after the sale closes.

Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn't include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.