If you’re looking for a better deal on travel rewards, or want to take advantage of a 0% introductory annual percentage rate for a balance transfer, you might be in the market for a new credit card.
Technically, you can submit credit card applications as often as you want, but opening credit card accounts too often could backfire. Ideally, you would want to space new credit card applications by at least 90 days – maybe more, depending on your credit score and goals – explains Daniel Gilaspia, lawyer and founder of UponArriving.com, a blog. which covers the evolution of travel. credit card rewards.
“If you are ambitiously pursuing credit card rewards, you might want to open a new card every few months,” says Gilaspia, who has 25 credit cards. “If you are focused on improving your credit score, you can open a new card every six to 12 months.”
How New Credit Card Apps Are Impacting Your Credit Score
Your credit score is a three-digit number that measures how responsibly you use credit. FICO credit scores, which are the most used by lenders, are based on five factors:
- Payment history (35%)
- Use of credit (30%)
- Credit age (15%)
- Credit mix (10%)
- New credit requests (10%)
This last point is important because when you apply for new credit, the credit card company will likely do a thorough review of your credit report. Every serious request then shows up on your credit report, which can lower your credit score.
“Any credit application for new credit has the potential to temporarily lower your credit score,” says Alex McElyea, vice president of analysis and program management at OneAZ Credit Union in Phoenix. “Usually a single request has minimal impact, but multiple credit requests over a short period of time can lower your credit score. “
But what impact does opening new credit card accounts have on your score? It depends, says Gilaspia. For most people, a serious new application will reduce the credit score by five points or less. But, says Gilaspia, the real impact depends on the your credit score health before the survey.
“If you have a very thin credit profile, the impact could be greater,” he says. “Until then, if you have a very established credit profile, the impact of a hard pull could be negligible.”
Gilaspia says new credit card accounts also affect your overall credit age, so it’s not uncommon to see a double lower your score – once when the investigation lasts, then later when the new account appears on your credit report. “
Even if several new credit card applications don’t dramatically change your score, they could still make you appear to be a higher risk in the eyes of lenders. Credit card companies can be wrong if they find that you have applied for multiple cards in a short period of time.
The end result could be a credit denial. It is important to be aware of this if you are planning to apply for something larger, such as a car loan, mortgage Where Commercial loan. Too many credit card applications could work against you for approval.
Can opening new credit card accounts help your score in the long run?
If opening new credit card accounts improves your credit utilization rate – your revolving balance against your Credit limit – it might help you in the long run.
“Total credit card usage is a big factor in credit scores,” says McElyea.
However, using a higher percentage of your total credit limit could be another red flag for lenders if they question your ability to keep up with payments. And, having too much credit usage can hurt your credit score.
Opening a new credit card account would increase your overall credit limit. Assuming you don’t reach a balance against this new limit, you can improve your usage rate and, in turn, your credit score.
“Some experts say that having multiple credit cards can improve your credit score,” says James Garvey, CEO and co-founder of credit lender Self Lender. “What they mean is that more credit cards create more available credit.”
He adds, “If you are responsible for managing your credit, opening additional credit cards can help reduce your credit utilization rate by increasing the denominator of available credit.
As a general rule, you should keep your credit usage below 30% overall. But closer to 7% may be ideal if you are aiming for an above average credit score.
For example, suppose you have four cards, each with a credit limit of $ 2,500, for a total limit of $ 10,000. Collectively, you owe $ 5,000 on all four cards, resulting in a 50% credit usage.
If you were to open a new credit card with a limit of $ 5,000, that would increase your total line of credit to $ 15,000. During that time, your credit usage would drop to 33%, assuming you maintain the same overall balance of $ 5,000.
What you need to decide is whether the improvement in your utilization rate is worth the initial drop in your credit score caused by a thorough investigation. The good news is that the impact on the credit rating of a serious investigation fades over time, affecting your FICO score for only 12 months and decreasing your report after two years.
What are the restrictions?
Again, you can technically apply for new credit cards as often as you want. However, credit card companies can set rules on how often you can be approved.
Chase, for example, can impose a 5/24 rule on new credit applications. This rule actually says that in order to be approved for any Chase credit card that is subject to the rule, you cannot have opened five or more personal credit cards in the previous 24 months. That doesn’t just mean the Chase Cards either. It extends to credit cards in all banks.
Citi and American Express are said to have similar guidelines for approving new cards. Citi Rule 8/65 specifies that you must wait at least eight days after requesting a personal Citi card to request a new one and that you cannot request more than two cards in a 65-day period. The American Express 2/90 rule limits you to two personal credit card approvals every 90 days.
“These rules are difficult for consumers because they are not always published,” says Gilaspia. “Some consumers will apply for a card and be refused, which will sometimes cause their credit report to drop sharply.”
While the restrictions on card approvals can be frustrating if there’s a particular card you’re trying to catch, McElyea says those rules serve a purpose.
“Each financial institution has its own rules which are generally designed to limit credit card losses for the bank,” says McElyea. These rules also “often help consumers get too much credit too quickly, which can be dangerous for new creditors or with limited experience managing lines of credit.”
Apply strategically for new credit card accounts
Knowing when to apply for new credit cards – and when to wait – is important, especially for your credit score. “Before you decide whether or not to apply for a new credit card, do an honest self-assessment of your spending habits and whether you think you can responsibly handle additional debt,” Garvey said. “If opening more credit cards leads you to overspending, you might want to avoid the potential debt trap of getting another credit card. “
Sometimes, however, opening a new credit card account can be caused by an emergency, such as a unexpected medical expenses or home repair.
“Some credit cards may be ideal for emergencies, as many of them offer extended 0% APR periods on purchases,” Gilaspia said. “In addition, some credit cards allow you to receive a credit card number instantly so that you can use it immediately.”
It is important to use caution, to ensure that you choose the correct card. Consider these questions before applying for a new credit card account:
- Why do I need this card or how will I use it?
- Does the card offer any rewards? If so, how is the rewards program structured?
- Will I be eligible for an introductory rewards bonus if the card offers one?
- How can the rewards be redeemed? Is matches my spending habits/style?
- Is there an APR introductory period for purchases or balance transfers, and how long does it last?
- What is the regular APR for purchases and balance transfers?
- Does the credit card company limit the frequency of card approvals?
- Are there annual fees or other fees?
- What kind of fraud protection does the card offer?
- Does my credit score match what is needed for the card?