Does it Hurt Your Credit to Apply for a Credit Card?

You may know that your credit score is calculated based on five key factors – payment history, level of debt, age of credit history, types of credit, and recent credit inquiries. You may not know, however, that credit card applications falls into one of those categories. Credit card applications impact your recent credit inquiries and therefore can have an impact on your credit score.

How Credit Card Applications Impact Your Score

When you apply for a credit card, the credit card company will pull your credit report to decide whether to approve or deny your credit card application. Each time your credit report is accessed by a business, a record of the inquiry is also placed on your credit report. These inquiries account for 10% of your credit score. The more of them you rack up, the more your credit score will be hurt.

Ten percent is a small part of your credit score, so you won’t lose all your credit score points. However, you can lose enough points to drop you from an excellent credit score to just a good credit score.

Why Do Applications Hurt?

Lenders and credit card issuers look at too many credit card applications in two ways. First, excessive credit card inquiries could show that you’re desperate for credit, perhaps because you’re in some type of financial trouble. They don’t want to give you a credit card if you’re having trouble with your money because it means you may not have any money for your credit card bill.

Too many credit card applications could also mean that you’re taking on too many credit cards. Of course, that’s if your applications are actually being approved. Several credit cards increases the amount of debt you’re able to go into and decreases the amount of money you have to pay all those bills.

Because of those two factors, the credit score calculation looks unfavorably on too many credit card applications.

How Long Will You Be Affected?

Credit report inquiries don’t stay on your credit report as long as other negative information. Instead, these inquiries remain on your credit report for two years. Fortunately, they will only affect your credit score for twelve months. If you applied for a credit card last year, it won’t continue hurting your credit score this year.

Not All Credit Card Applications Hurt Your Credit Score

Credit card issuers generally check your credit report to decide whether they should approve your credit card application. They also review other factors on your credit card application, like your income before they will approve your application. If your income doesn’t meet the credit card criteria, your application will be denied before a credit check is ever done. In that case, the applying for a credit card won’t impact your credit score. In fact, your credit report won’t show a record that you ever made that credit card application.

Pre-Approved Offers Don’t Hurt

Credit card companies check your credit report to send you those pre-approved credit card offers in the mail. These “soft” inquiries are placed on your credit report, but you’re the only one who can see them. Soft inquiries don’t have an impact on your credit score.

If you respond to a pre-approved offer, though, and apply for the credit card, a “hard” inquiry will go on your credit report. These are the types of inquiries that hurt your credit score.