Applying For a New Credit Card Implications on your Credit Score
The temptation to get a new credit card always comes calling. While it may entitle you to new kinds of benefits, you do have to address the implications that the card will have on your credit score. If you do have a good credit rating- excellent or very good- then the implications of getting a new credit card do not hold so much gravity per say. But if you are struggling to raise your credit, it’s a decision that you might want to address in deeper detail.
There are two sides to applying for a new credit card, and both of these are addressed, starting with the advantages. Getting the new card can actually help you improve your credit score, but you have to be a disciplined shopper to gain this advantage. The goal is to drop your credit utilization, so that your credit score can increase. But this means not making new purchases with the card, which somewhat defeats the purpose of getting the card to begin with. However, if your primary goal is to raise your credit, it is the reality you have to put up with. If you absolutely must spend on the new credit card, make sure you use very little of the available credit. Around 10% is sufficient, since it will give you a good credit-to-debt ratio. Try to stay below a 50% credit limit, to avoid having a poor credit ratio.
The disadvantages in this case do outweigh the advantages. You should not get a new credit card if your solitary goal is to increase your credit score. The risk is far too big, and besides, there are other ways to raise your credit score. That said, there are some hits that your credit score takes when you apply for a new credit card. The first is with your credit inquiries. Whenever you add a new credit card, a hard inquiry does show up on your report. The credit pull is made by the lender offering you the card. As long as your application is submitted, the credit inquiry will be made, even if you have not been approved for the card yet. So what does that mean? Well credit inquiries are a measure of your financial responsibility. When too many of them show up on your credit score, it is lowered, since they account for 10% of your total score.
Opening a new credit card will also lower your credit age. This is basically the length of time that has passed since you first opened up a line of credit. The rule is, the older your accounts are, the better credit score you will have. This in other words is to say that adding new accounts will lower your credit age, and this will result in a lower credit score.
In the end, you have to decide whether the new credit card is the best financial move to make. You should only apply it on a basis of need, not want.