Just about everyone has a credit card, but many people are hesitant to get more than one. I personally think you should always carry more than one in case you run into any issues using your main card, but I understand why some people prefer to stick to just one.
Some people are concerned that having multiple credit cards will encourage them to spend while others are worried about how it’ll affect their credit score. Yes, whenever you apply for a new credit card, your credit score is affected, but it shouldn’t be a huge concern.
What is a credit score?
In case you didn’t know, your credit score shows how credit worth you are. Your score is a number that falls between 300 and 900. The higher your credit score is, the more creditworthy you are.
For those who have a credit score below 660, there’s a good chance that you’ll be denied if you need additional credit. The good thing is that you can take steps to improve your credit score.
Generally speaking, anything above 660 is good, but you should aim for a number over 750 as you likely won’t have any issues securing additional credit if you need it.
Hard vs. soft credit inquiries
When applying for any type of credit, including credit cards, a hard inquiry is requested against your credit history which results in a drop of 10 points. This happens because lenders need to take into your credit history to see if they want to lend to you.
Many people freak out about this 10 point drop and think it’ll hurt them, but the reality is, it’s a pretty minor thing. Yes, your credit score will go down, but if you make your payments on time, it’ll go back up after a few months. In other words, applying for another credit card probably won’t be a big deal in the grand scheme of things as long as you pay your bills on time.
Soft inquiries are also performed by banks, but it’s usually used just to qualify people. For example, will often do these soft inquiries to figure who they should target as part of their next marketing campaigns. If you have a good credit score, they may send you an email saying you qualify for a new credit card or a line of credit.
When banks do a soft check, all they’re really doing is looking at your credit score. When it comes to actually applying for a product, they’ll likely perform a hard check as final due diligence.
Some people assume that a credit check isn’t required when they’re pre-approved for a credit product, but that’s not always the case. There’s always a chance that the lender will do a final hard check before approving you.
Applying for multiple credit cards
Does applying for a credit card affect your credit score is usually asked by people who are interested in churning credit cards. Obviously, the hard inquiries have an immediate impact on our credit scores, while applying for multiple cards can have some unintended consequences as many providers are clamping down on people who have been abusing bonuses.
Regardless of our intentions, applying for multiple cards in a short period of time will appear as if we’re trying to access money fast. This can hurt you if you plan on applying for a mortgage or a line of credit in the near future. Lenders will look at your activity and wonder why you’re trying to access so much credit. It’s a serious flag and it’s enough for them to reject your application.
It’s perfectly fine to apply for a few new credit cards a year, but I really wouldn’t recommend applying for multiple cards in a short period of time.
Another consideration when applying for new credit cards is your credit utilization ratio. Credit utilization is the amount of credit you’re using relative to what you have access to.
Let’s say you have a credit limit of $5,000, and you currently have a balance of $4,000, that’s an 80% utilization ratio which is quite high. If you applied for another credit card and are approved with a limit of $5,000, your utilization ratio would drop right away to 40%.
This is relevant because your utilization ratio is one of the factors used to determine your credit score. It’s pretty common for people to cancel credit cards they no longer use, but keep in mind that this will actually increase your credit utilization ratio.
Keeping an older credit card active can also benefit you since your credit length is another factor when determining your credit score.
So does applying for a credit card affect your credit score? Yes! Anytime you apply for credit, you take a hard hit on your credit score. While the drop in your credit score is something worth considering, it will go back up over time so it’s not a big deal.