Applying for Credit Cards Won’t Hurt Your Credit. It Can Actually Help!

“Won’t applying for credit cards hurt my credit?”

Most of the time this is the first question I get asked.  Each time you apply for a credit card you incur an “inquiry” on your credit report.  Inquires affect your credit score but only by a little bit. No matter how many inquiries you have, it only represents 10% of your total credit score! FICO BreakdownOn top of that, credit inquiries fall off your credit report after 2 years, and you can have over 10 inquiries before it even begins to negatively affect your score.  To go over the basics of your credit score, you can go to MyFICO.

FICO actually lists applying for new credit as one of the credit fallacies of your credit score.

It can actually improve your credit score!

An enormous portion of your credit score is determined by how much you owe in total, or your “credit utilization rate.” Assuming you pay your bills at the end of the month every new credit card you open increases your total amount of credit.

Secondly, applying for credit cards counts as a new relationship with a creditor.  As time passes FICO will value the length of that credit relationship.  Long relationships with creditors outweigh any new credit cards you apply for.

30% How Much You Owe + 15% Length of Credit History > 10% Applying For New Credit Card

Ultimately if you pay your bills on time and keep your credit balances at zero or low and your credit will be great. So don’t be scared!  Unless you’re buying a home or other major purchase in the next year or so, applying for credit cards barely makes a scratch on your credit score.  It’s a temporary scratch at that.

If you want a more in-depth walkthrough of how credit scores work relative to points and miles, you can go here for a great analysis.

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