Applying for a credit card can hurt your credit score a little. However, the impact is temporary. Hard pulls stay on your credit report for two years, but the credit score effects wear off after one year.
If you’re looking for a credit card, what you should do is easy: Pull and review your credit report, decide what kind of card you want, and apply for the best credit card you can.
What you should not do may not be as obvious.
We consulted lenders and financial counselors to create a list of 10 things not to do when applying for a new line of credit.
But first, let’s dive into the impact that a credit card application has on your credit score.
Does applying for a credit card hurt your credit score?
Yes, applying for a new credit card can hurt your credit score a little. According to FICO, a hard inquiry – when a card issuer pulls your credit after you apply – can lower your score by five points or less. However, the impact is temporary. Hard pulls stay on your credit report for two years, but their credit score effects wear off after one year, according to national credit bureau Experian.
Additionally, new credit is among the five most important factors in your FICO score, though it only counts for 10%. So new credit card accounts will have a much smaller effect than a truly negative credit report item, like a missed credit card payment or a maxed-out card.
Though the credit score impact of a single card application can be small, too many of them in a short amount of time can add up to a significant loss. And if you’re in the process of applying for a mortgage, hard inquiries from new credit card applications can give your prospective lender the impression that you’re about to overextend yourself or go on a credit card spending spree.
See related: Why does a hard inquiry hurt your credit score?
10 things not to do before applying for a credit card (and how it will affect your credit score)
1. Let your credit score slip
Why it hurts you: Credit card companies look at your score to make a decision on whether you get a card.
The better your credit score, the better the card you can get. If you have excellent credit, you have your pick of cards. Big sign-up bonus? Go for it. Want a balance transfer? No problem. Low interest rate? You got it.
But if you have bad credit, your choices will be severely limited.
To find out where you stand, you have several choices. An increasing number of credit card issuers give out credit scores for free. These scores are often not official FICO scores, but should give you an idea of how strong your credit is. And Discover and Capital One both offer free credit score services, neither of which requires you to be a customer.
Long story short, checking your credit score or credit report does not hurt your score.
Lenders differ widely on the scores you need to qualify for their cards. How can people find out the credit score requirements of a company prior to applying for a credit card?
You can get a good idea of which cards you qualify for by using CardMatch, a free CreditCards.com service.
2. Apply for a lot of credit cards or loans
Why it hurts you: Maybe you’re interested in shopping around for the best deal and want to see who will approve you for a card. But think twice before going on a mass application spree. An analysis of your new credit makes up 10% of your score, according to FICO, and multiple credit inquiries drag down that score.
“You don’t want to go out and apply for a bunch of different accounts,” said Bruce McClary, vice president of public relations and external affairs for the National Foundation for Credit Counseling and a former consumer credit counselor. “It may send a couple of messages. First, it tells the lender that you went to a bunch of places and got denied for some reason. Or the possibility exists that you opened an account in each of those places,” which can signal financial problems.
Each time you apply for credit, a hard inquiry is generated on your credit report when a lender checks to see if you are creditworthy. Each hard inquiry drags down your score. Paying on time with a new card quickly erases the damage. But as noted above, when you apply for multiple cards at once, lenders view this as risky behavior.
So apply for new credit cards strategically. If you get rejected once, figure out why before you apply again. If you have mediocre credit and have your heart set on a high-end card, it’s not going to happen. Either settle for the card that fits your credit standing or work to improve your credit so you do qualify.
Instead of applying for multiple credit cards, check your credit score and pull your credit report at AnnualCreditReport.com to get an idea of what type of card you’re likely to be approved for.
3. Use too much credit
Why it hurts you: Your credit utilization ratio accounts for 30% of your credit score. If you’re close to maxing out any account, you’re considered a high risk to credit card issuers.
“For any existing credit cards you have, you want to minimize percentage utilization and maximize credit available,” said Kevin Gallegos, senior vice president of new client enrollment and Phoenix sales at Freedom Financial. “If you have a credit card with a limit of $10,000, and you owe $3,500 on it, that’s a 35% utilization.”
You often will read that using more than 30% of your credit is bad and using less than 30% is good. That’s a myth. Credit utilization is a sliding scale, not a cliff. Just strive to keep balances down. The smaller your credit utilization, the better it is for your score. According to FICO, those with the best credit scores on average use less than 7% of their credit limits.
4. Miss payments
Why it hurts you: Your payment history accounts for the biggest chunk of your credit score, weighing in at 35%.
Patrick Nichols, a database analyst from Boston, learned this lesson the hard way when he missed a payment deadline on one of his credit cards by just two hours. “I went from paying 0% to 30% overnight,” he said.
Nichols started shopping around for other cards to transfer his balance and he came up short on offers. Not only did he have the late payment on his record, but he also had a high balance and was starting to rack up multiple inquiries. He found he was limited only to cards with higher interest rates.
“On-time payments are the most important factor in developing good credit,” said Gallegos. “Paying bills on time for as little as one month can raise a modest credit score by 20 points.”
5. Have too many subprime loans on your report
Why it hurts you: If there are too many subprime lenders represented in your credit mix, (which accounts for 10% of your score), it could cause credit card companies to think twice about giving you a card.
Lenders “look at what types of creditors you are doing business with, and some of them take issue with applicants who come in with a portfolio of subprime lenders,” said McClary.
Subprime lenders are companies that market financial products to people with bad credit. Subprime products tend to carry much higher interest rates to offset higher-risk customers.
How much does this affect your credit? “It’s all about proportion,” McClary said. “If 90% of your creditors are prime creditors and you have this one subprime account, it’s going to be like a pebble in an ocean.”
On the other hand, if you have numerous high-interest accounts, that could potentially be a problem, he explained.
6. Cancel other cards
Why it hurts you: Canceling accounts in good standing with other companies can appear to shorten your length of credit history on your report (15% of your score) and can also reduce your total available credit, which could drive up your debt utilization ratio if you’re carrying big balances on other cards.
People often are tempted to close out accounts they no longer use, just to keep things simple. But doing so can have a negative effect on your credit score.
“Your debt ratio worsens when you shut down inactive accounts,” McClary said.
It might be a good idea to make a small purchase – a pack of gum or a cup of coffee, perhaps – on a card you don’t use much and then pay it off. That little activity could be enough to keep the card issuer from shutting your account down and damaging your credit.
However, if a card you rarely use charges an annual fee or if you just need to simplify your card holdings, go ahead and close the card. But it’s probably not wise to close multiple cards at once. Also, if you have a card that is significantly older than your other cards, try to cancel the newer ones so you don’t lose so much history.
7. Fail to check your credit report for errors
Why it hurts you: Mistakes or fraud could be hurting your credit.
The problem can be as simple as having a too-common name or a name that frequently gets misspelled. OK, so there’s not a lot you can do if your name is “John Smith.”
Still, you should be aware that your common name can make you more prone to mistaken identity when it comes to your credit report, which in turn could make it more difficult for you to secure a card. According to the Federal Trade Commission, 1 in 5 Americans have mistakes in their credit reports big enough to affect their credit scores.
Some mistakes are easy, but nagging. For Revvell Revati, a natural health practitioner in Altadena, California, credit card companies often misspell her first name with a W instead of two Vs.
“It’s an ongoing problem,” she said. “I recently attempted to get a credit card and was turned down. I’ve been accused of fraud.”
If you suspect that the problem is more serious – maybe another person is trying to steal your identity to open accounts in your name – you may want to consider installing a credit freeze. That prevents anyone – including you or someone pretending to be you – from opening new accounts in your name.
People with common names or misspelled names should also review their credit reports frequently.
8. Avoid credit altogether
Why it hurts you: You need a healthy, active credit history for credit card companies to consider you for a loan.
“Don’t try to protect things by not borrowing anything,” said Gallegos. “Credit card issuers and credit reporting agencies rely on past payment history to gauge how borrowers will do in the future.”
“If you don’t borrow, they have no information to rely on. For those without any credit cards, a student loan or car loan helps build a credit history, as does paying every single bill on time and in full. That includes rent, phone, Internet and utility bills.”
9. Co-sign a loan for someone who is financially reckless
Why it hurts you: When you co-sign, you take responsibility for the other person’s credit decisions, good or bad.
By co-signing, you will be held responsible for loan repayment if the primary loan holder starts missing payments. And unless you and the person you co-signed for are communicating about the lapsed payments, you might not even know the loan is delinquent. Lenders won’t generally contact co-signers until the account is 90 days late, and, by that time, a late payment (or two) may be already appearing on your credit report, which will hurt your score.
The solution is to make sure that when you co-sign for someone, the bills are mailed to you, so you can keep track of the person’s payments on the loan. Financial experts advise, however, that you avoid co-signing as studies have shown that co-signers tend to lose money or suffer credit score damage.
10. Lie about your income
Why it hurts you: Lying on a credit application is fraud, and you could be penalized for it.
Under federal law, card issuers must assess your ability to repay, and that means asking about your income. If you lie, the maximum penalty is severe – 30 years in prison. In reality, the most likely penalty for lying about your income is you’ll get a card you can’t handle and go deep into debt.
Federal regulations require issuers to weigh applicants’ abilities to repay what they borrow on their credit card, which means they’ll ask about your income. Inflating your income on a credit card application may seem like an easy way to boost your odds of approval, but it’s not worth the risk. If you bloat that number, you could get a card with a larger credit limit than you can handle.
It’s best to be honest and accept that the credit you get is the credit lenders think you deserve.
If you’re shopping around for a new credit card, it’s important to balance your spending needs with your current credit situation. After all, an inordinate amount of hard inquiries – whether or not you’re approved for all the cards for which you apply – can damage your credit and leave you with a card that doesn’t adequately suit your purchasing habits.
But the right card can help you save on your everyday spending or build up rewards to put toward a trip or a big purchase. Getting it right the first time will minimize the impact on your credit.