Enough Already: How Much Damage Do Multiple Credit Applications Cause to your Credit Score?

credit applicationsUsing a credit card responsibly can help you to build a good credit score, but applying for multiple cards could actually hurt it. Getting new credit cards can be helpful, but you should make sure you understand how applying will affect your score before sending in the application. Apply for credit strategically, so that it helps you build your credit instead of causing damage to it.

How Credit Applications Affect Your Score

Understanding how credit applications impact your score is the first step to determining when, if at all, you should apply for new cards.

Credit inquiries are a regular part of having credit. “Hard inquiries,” however, affect your credit score. These occur anytime you apply for a new credit card or loan. Each hard inquiry will cause your score to drop by a few points. Most people can regain these points within about six months, but if you’re worried about your score, losing those points might be an issue.

When you apply for multiple credit cards, you’ll look like a riskier borrower, because multiple cards means a higher amount of financial risk.

You shouldn’t confuse this with how applying for multiple loans impacts your score. If you apply for multiple loans at once, it will only count as one inquiry, because people usually only get one loan, which means you were probably just shopping around for the best rates. People do get multiple credit cards, however, so each new credit card application requires a hard inquiry.

When to Apply for Credit

The length of time you’ve had your credit cards can affect your score, so it’s wise to wait longer periods of time between new credit applications. If you apply for a new credit card once a year or more, your credit score will always be “young” and, therefore, lower. Spacing out your applications can help keep your score up.

If you’re planning to apply for a personal loan, auto loan, mortgage or other important loan, it might be smarter to wait for a bit before applying for a new credit card. The hit your score takes as a result of a credit application could impact the rates you get on your loan or even whether you’re accepted. If there’s a chance you’ll need a significant loan in the next six months to a year, it’s probably smarter to wait on applying for credit.

How Many is the Right Amount?

The right amount of credit cards varies from person to person. It depends on how well you can keep track of your payments and budget, the benefits and risks of opening new cards and your own spending needs. Generally, you shouldn’t open new credit unless you need to. You should also always thoroughly research a card, consider how it will affect your credit score and make sure you can afford any fees and be certain you can use it responsibly before you apply for it.

Figuring out how credit card applications will affect your score can seem tricky, but just remember that each application will cause your score to drop by a few points. Make sure you space out your applications, wait to apply if you’ll need a loan within the next year, spend carefully and make all of your payments on time. If you do all of that, your credit score should remain at a healthy level in the long term.

Photo: Jake Rustenhoven

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