Does Applying For Credit Cards Hurt Your Credit Score?

Filed Under: Advice, Credit Cards
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I like to tell everyone who will listen about the huge value they can get by maximizing credit cards and using them responsibly. There are so many great credit cards out there, and those who are using debit cards or paying cash are basically throwing money out the window.

When I’m talking to a skeptic about credit cards, there’s one misconception I hear more than any other — “but I heard that applying for credit cards is bad for your credit score.”

Is there any truth to that? At the moment I have over 20 credit cards and my credit score is nearly perfect. Let’s look at how that’s possible.

How your credit score is calculated

Your credit score is made up of the following components:

  • 35% of your score is your payment history (the percentage of payments you’ve made on-time)
  • 30% of your score is your credit utilization (how much credit you’re using compared to your total limits)
  • 15% of your score is your credit age (the average age of your open accounts)
  • 10% of your score is the types of credit you use (how many different types of requests for credit you have)
  • 10% of your score is your requests for new credit (how many times you’ve applied for credit)

Your takeaway here should be that if you make your payments on-time, don’t utilize too much of your credit, and keep your average account age fairly old, that’s 80% of your credit score right there.

How your credit score goes down when you apply for credit cards

When you apply for a new credit card there’s typically a hard pull to your credit. While the exact impact will vary by person, typically each inquiry will ding your score about 2-3 points. That will fall off your credit score within 24 months. Credit scores max out at 850, so a 2-3 point drop is almost nothing.

But that’s the only consistent downside to applying for cards.

The other potential downside (though it doesn’t have to be a downside) is that your average age of accounts is part of your credit score. Let’s say you previously had just one credit card for 10 years, and you suddenly apply for a new card. Now your average account age will be five years. The way to prevent this from being a problem is to keep a few credit cards open for a long time.

How your credit score goes up when you apply for credit cards

The above cover the limited downsides to applying for credit cards. An inquiry could lower your score by a couple of points temporarily. But you can see huge positive improvements to your credit score when you open new credit cards.

The most basic reason for this is that you’ll have a lot more available credit, and the percent of credit you utilize and your ability to make those payments on-time makes up 65% of your score.

For example, say you currently have one credit card with a $5,000 credit limit, and you spend $5,000 on it per month. You’re utilizing 100% of your credit.

To give an extreme example, say you then have 10 credit cards with a $5,000 credit line each, and you still spend $5,000 per month. You now have $50,000 of available credit, but you’re now only utilizing 10% of your credit.

This will have a hugely positive impact on your credit score. Why? Because it raises a red flag when you’re using almost all of your credit. That’s because card issuers are concerned whether you’re maxing out your credit card.

If you’re using all the credit that you have available, they wonder what will happen if they give you more. Meanwhile if you have a lot of credit that you’re using responsibly, card issuers view that as low risk, because they can see how responsibly you are.

A real life example

I have over 20 credit cards, so let’s take a look at my actual credit score and details. On a scale of 300 to 850, my credit score is 834 and 827 with Transunion and Equifax, respectively. That’s a pretty close to perfect credit score.

Then there’s a more detailed description of what comprises my score:

As you can see here, on the high impact areas I do very well — I have very low credit utilization (apparently 0% — that’s how much available credit I have), I make 100% of my payments on-time, and I have zero derogatory marks. Those are the most important things on your credit report, and my credit utilization wouldn’t so low if I didn’t have so many cards.

Furthermore, my average age of accounts is even really high thanks to the cards I’ve had open long term, which always help keep that number up.

To be clear, my situation isn’t an isolated incident. For example, when I met Ford several years ago, his credit score was in the low 700s. He was frustrated, because that’s good but not great, and he was worried that if he applied for more cards his score would get worse. Well, he has applied for a lot of cards, and his credit score is now better than mine — it’s 838.

Why you might want a lot of credit cards

The logical follow-up question is “okay, you can have a lot of credit cards, but why would you want to?”

Well, first and foremost my goal is for those of you who are exclusively using debit cards to instead switch to credit cards, assuming you can use your credit responsibly (it’s almost never worth carrying a balance on a credit card).

Way too many people only have debit cards, so it’s time to start building your credit and realize that applying for credit cards can potentially help your score, rather than hurt it. Pick up a card like the Chase Sapphire Preferred® Card or Chase Sapphire Reserve® Card, which offer easy to use points and great bonuses on spend.

If you don’t want to get into points, pick up something like the Citi® Double Cash Card, which has no annual fee and offer 1% cash back on every purchase, and then an additional 1% cash back when you pay for those purchases.

But why would you want to have many credit cards?

  • First you want some cards that can help you maximize the points you earn for your everyday spend — the Chase Sapphire Reserve® Card offers triple points on dining and travel, the Citi Premier℠ Card offers triple points on travel and gas stations and double points on dining and entertainment, and the American Express® Gold Card offers 4x points at restaurants globally, 4x points at US supermarkets (up to $25,000 per year), and 3x points on airfare purchased directly with airlines, just to give a few examples
  • Then there are some credit cards that offer annual perks that more than justify the annual fee — The World of Hyatt Credit Card, and IHG® Rewards Club Premier Credit Card, and Marriott Bonvoy American Express Card each offer valuable anniversary free night certificates just for paying the annual fee, with no spend requirements
  • Then to help build your credit score long term and keep your average age of accounts as high as possible, it can make sense to have some no annual fee cards, like the Chase Freedom® Card and Chase Freedom Unlimited®

Bottom line

There are a lot of misconceptions about credit cards, though probably the most common involves the belief that applying for credit cards will hurt your credit score. This simply isn’t the case, at least if taking a long term approach to credit cards. In the short term you will be dinged a couple of points if you apply for a credit card, though the long term benefits more than outweigh that, including your decreased credit utilization and positive payment history.

Hopefully this inspires at least a few of you with debit cards or limited credit cards to start maximizing your points!

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  1. “There are so many great credit cards out there, and those who are using debit cards or paying cash are basically throwing money out the window.”

    On average, many, many more people throw cash out of the window by overspending on credit cards and paying interest than those that “throw cash out of the window” by not having a credit card and using debit cards or one card instead.

    Many of the most successful people I know have only one or two cards. Do what works best for you.

  2. Even though applying for cards won’t hurt your credit score, I feel like to only have credit cards that I know will used pretty regularly, because I’m not going to apply for a card just for the welcome bonus. So that’s why I only use 3 cards, Chase Sapphire Reserve (travel and dining), Chase Freedom Unlimited (for most of my other spends) and Hyatt card (for Hyatt spends and anniversary free nights).

    Ultimate rewards are valuable for me since I’m hub-captive with United and Hyatt is my favorite hotel brand, so there

  3. @lucky – I have 2 questions
    1) At what age should a person get their first credit card? How many should they get when starting out and how long should they wait until they apply for a new card?

    2) In the title picture you have the rose gold amex card. Is the gold card which you get from the Amex Platinum also available in this color or is it only the paid verson?

  4. On point. I’ve gone round and round with people over this. I’ve learned that a lot of people just have no self-control. They can exist with a debit card because they see $ leaving on each swipe. Then they go wild with a CC when that $ isn’t instantly gone. Since we can’t teach people to be responsible if they’re not by now, they should stay away from CCs.

    The other thing I’ve noticed from a lot of my friends is they’ll treat it like a quasi-debit card and pay the balance every week or in extreme cases every day.
    Maybe you could do a post on how the ins and outs of CCs work regarding interest, due dates, running balances etc.??

    These are normally intelligent people who understand the time value of money and theoretically agree that they’re wasting it by paying sooner than they have to, but they’re just not comfortable enough with the system to trust it. I think that’s a pretty big barrier to entry just because “credit card debt” has become a buzzword epidemic.

    You’d think setting autopay to your due date would be simple and easy, but some are petrified by the thought of it. And people… if you’re paying early, the banks are making money when you could have.

  5. My current credit score is 821. I have no late payments, no bad comments, credit history of 23 years, 2 open accounts in last 2 years, 4% utilization of $124,000 of credit. I have always paid off balance each month. I have Chase Freedom and also have IHG Chase card. I applied for Chase Reserve last week and called today and was told would know their decision in 30 days. This seems odd to me . Is this usual for the Reserve card? I already have $50,000 credit line with Chase between my other 2 cards with them. Would the fact that my wife who was targeted for AMEXPlatinum with 100,000 bonus just received that card affect my application with Chase?
    Thanks for any insight to help me understand this.

  6. “There are a lot of misconceptions about credit cards, though probably the most common involves the belief that applying for credit cards will hurt your credit score” – I think one of the most common misconceptions (among people who have no credit cards) is you always have to pay some interest with some people not understanding the pay in full by due date concept.

  7. A couple months ago I charged a $40k home improvement immediately on the tail of a $7k home improvement. That, along with my monthly spending, raised my credit utilization to 40%. My score dropped 65 point the mid-700s and then rebounded 75 points to almost 840 when I paid the bill. I was glad that I knew to expect that to happen.

  8. the only reason this works is because we have more people paying overdues and interests. if anything, we should thank them because without those pay check to pay check people, our credit card system will not be so luractive. cheers.

  9. On the AMEX free fico both my wife and I are showing 850! Not that it matters all that much but sure is fun looking at it.

    Back before I thought much about credit scores I went into my credit union to refinance an auto loan, the loan officer came back and told me she’d never seen a credit score as high as mine…fun to be noticed as something unique.

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