In the short condition, opening a newly accredit card is likely to hurt your credit score a little act, as it adds a hard inquiry to your credit reports and reduces your average age of accounts .
however, in the long prevail, opening a modern credit circuit board can help improve your credit score by boosting the total of available credit you have, while besides reporting your report and requital history to the three major consumer credit chest of drawers .
We explain how to protect your credit rating score as you use the new card .
How does opening a new credit card hurt your credit score?
When you apply for newly credit, this generates a hard inquiry when the lender pulls your accredit report from one or more of the three major consumer credit chest of drawers ( Equifax, Experian and TransUnion ) to review your creditworthiness. A hard inquiry typically drops your credit score about 5 to 10 points, and will stay on your credit reports for two years. however, the minus impact on your citation score ends after just one class .
Opening a modern credit circuit board can besides hurt your credit score by reducing your average age of accounts. Length of credit history makes up 15 % of your FICO grade, the scoring model typically used by lenders when deciding whether to extend you credit rating, and the average age of accounts is part of that factor. For this argue, it ’ mho best to apply for new credit meagerly, allowing the accounts you have to age — the longer your credit history, the more positive it reflects on your citation mark. That ’ randomness besides why it ’ mho significant to be judicious when closing previous batting order accounts : personal finance experts advise to keep old calling card accounts open and active, deoxyadenosine monophosphate hanker as it ’ sulfur not costing you to keep an old card open ( such as charging an annual fee ) .
How does opening a new credit card help your credit score?
The chief way that opening a new credit rating card may improve your recognition score is by improving your utilization proportion, which is the technical term for how a lot of your available accredit you ’ ra using. Credit use is besides referred to as “ amounts owed ” and is the second most important factor ( after payment history ) of your credit score .
For case, if you have a credit poster with a $ 1,000 credit limit with a $ 300 poise, that ’ s 30 % utilization. A good principle of flick is to keep use at or under 30 %, so a $ 300 poise is right at the cusp in this exercise. If you open a newly card that gives you another $ 1,000 credit terminus ad quem, that reduces your overall use to 15 % ( $ 300/ $ 2,000 = 15 % ). note that utilization is calculated both per individual accounts and across all your accounts. Paying off your circuit board or cards in full arsenic often as possible ( for case, at the end of every week ) can help ensure your issuer reports a depleted use to the credit agency .
so opening a newfangled credit score gives you more available credit overall, meaning if you don ’ thymine increase your spend, your use proportion should decrease .
besides, if you ’ re opening your foremost credit card, this can help your credit grudge by expanding your credit mix, which makes up 10 % of your FICO Score. note that credit mix does not mean how many recognition cards you have from unlike issuers ; rather, it means unlike types of accounts, such as credit cards and loans ( like an car lend or mortgage ) .
How many credit cards is too many?
Having at least one credit menu is a good thing because it can help you build recognition. But how many accredit cards should you have ? There ’ s no one-size-fits-all solution. For some consumers, one credit poster is enough vitamin a farseeing as it reports payment activeness to the three accredit chest of drawers. other consumers may use two, three or even more credit cards to earn rewards in different spend categories .
fair be sure that however many accredit cards you use, you can even keep chase of your payment due dates. Some issuers allow you to request the due date of your predilection, which means you might be able to arrange it so wholly your cards have the like ascribable date. You could besides set up e-mail or textbook message alerts for when a due date is approaching, or activate autopay so at least the minimum payment is made automatically — on-time payments are the most authoritative agent of your credit grade.
How to build credit and keep a good credit score
These are the five factors that make up your FICO score :
Bearing these factors in mind, here are some tips for how to build and keep a good credit score :
- Pay on time, every time. If you can, always pay off your cards in full. And if you can’t do that, make at least the minimum payment to avoid having a late payment on your record. The good news is that payments aren’t typically reported as late to the bureaus until you’re 30 days past due, so if you realize you’ve missed a due date, act quickly to submit the payment.
- Keep your balances low. You don’t want to max out your credit cards. Utilization is the second-most impactful factor affecting your credit score, and carrying high balances can be a signal to lenders you may be at risk of not being able to pay back what you owe.
- Apply for new credit sparingly. This addresses the length of credit history and new credit factors. You don’t want to end up with numerous inquiries on your credit reports, which can be a warning sign to lenders that you’re desperate for credit. And you don’t want to continually reduce the average age of your accounts by opening new ones, either. Time is a powerful ally when it comes to building credit.
- Maintain a healthy credit mix. Applying for credit products in a responsible way, as needed, can improve your credit score by showing you can manage different types of accounts. For instance, you may take out student loans and open a student credit card while in college, take out an auto loan after graduation and, eventually, apply for a mortgage.
Important credit card terms for new cardholders to know
If you ’ re newfangled to accredit, you ’ ll want to make indisputable you understand the relevant terminology :
- APR: This stands for annual percentage rate. With some financial products, APR and interest rate differ, but they mean the same thing when referring to credit cards. Note that some cards offer 0% introductory APR periods on purchases or balance transfers, during which time interest won’t accrue on eligible balances.
- Statement closing date: The last day in your billing cycle is the statement closing date. Purchases that you make after that date (or purchases that post after that date) will appear on the next billing cycle.
- Payment due date: This is the date your credit card bill is due. You’re required to make at least the minimum payment, though it’s better to pay off your balance in full to avoid interest charges. Your due date remains the same from month to month, and some issuers allow the flexibility to request the due date of your choice.
- Minimum payment: Each billing cycle, you must pay at least the minimum due. Your minimum payment is likely calculated one of two ways: either as a percentage of your total balance or as all of the interest owed plus 1% of your principal balance. There’s also typically a threshold for your minimum payment, such as $25, and if you’re carrying less than that on the card you’ll have to pay off your balance in full.
- Grace period: Most credit cards offer a grace period, a window of time between when your billing cycle ends and your payment is due. If you pay your card in full by the due date, a grace period allows you to avoid incurring interest charges. Note, however, that if you roll a balance over from one billing cycle to the next, you’ll be charged not only on the unpaid balance, but also on purchases made in the new billing cycle.
- Late fee: If you pay late, your issuer can charge a late fee. You can be charged up to $30 for your first late payment, and if you have a subsequent late payment within six billing cycles, you can be charged up to $41 for that.
- Penalty APR: In addition to a late fee, missing your payment due date can also trigger a penalty APR, an elevated interest rate. This will apply to new purchases on the card, and if you don’t pay up within 60 days, the higher APR can be applied to your current balance, too. If you trigger a penalty APR, you may take some solace in the fact that the Credit Card Act of 2009 requires issuers to reinstate your regular purchase APR after you’ve made consecutive on-time payments during the six months following the activation of the penalty rate.
- Annual fee: Some credit cards charge an annual fee, which you’ll pay just to have the account. Typically, we recommend looking at credit cards with no annual fee, unless you want a rewards card that offers benefits like airport lounge access, travel protections or credits for certain types of spending.
- Foreign transaction fee: Many cards charge a foreign transaction fee of around 3% for purchases outside the United States. If planning a trip abroad, consider getting a credit card with no foreign transaction fee instead.
- Balance transfer fee: If you plan on transferring a balance from an existing credit card to your new one to save on interest charges, beware that many credit cards charge a balance transfer fee of 3% to 5% of the amount transferred. That means, for example, if you transfer a $1,000 balance to a card that charges a 3% balance transfer fee, you’ll pay $30 to do so. There are credit cards with no balance transfer fee, but they’re relatively rare.
Frequently asked questions
How long will it take for my new credit card to arrive?
It typically takes seven to 10 commercial enterprise days to receive your forcible credit card in the mail, though some issuers offer expedite delivery that may have a fee .
Can I use my credit card before it comes in the mail?
Some issuers may provide you with an clamant credit menu number, allowing you to use it for on-line purchases or with a digital wallet before your physical batting order arrives .
Should I close old credit card accounts?
The short answer is “ it depends. ” When you close a credit card and the account was in commodity stand, it ’ ll persist on your credit reports for 10 years, so you don ’ triiodothyronine lose that positive history correct away. however, you will lose that line of accredit, meaning your use ratio could increase if you ’ re carrying a balance on any other cards .
Will carrying a balance help me build credit?
No, this is a myth. a long as you ’ re using your credit rating poster, paying on clock and keeping utilization depleted, you ’ ll build credit — no indigence to carry a balance .
Does checking my credit score hurt my credit?
No, checking your accredit score doesn ’ metric ton impact your credit at all. You can check your credit sexual conquest for release and monitor your advancement as you work to build and keep a good score .