Does Signing Up for a Credit Card Affect Your Credit Score?

Failing to pay your bills on time and high balances on revolving accounts aren't the only events that can lower your credit score. Applying for new credit accounts, such as credit cards, can harm your credit score before you even use them. Lenders use credit inquiries as an indicator of a potential customer's credit risk, and six or more inquiries usually spells high risks for potential lenders, according to MyFICO.

What is a Credit Score Inquiry?

Whenever a creditor or potential creditor obtains a copy of your credit report, credit bureaus record each request as a credit inquiry and they appear at the end of your credit report. Sometimes you may see inquiries listed that you haven't initiated or from businesses you aren't familiar with, but the inquiries that matter are the ones that result from applications for new credit.

Types of Credit Score Inquiries

Credit inquiries consist of two categories, soft inquiries and hard inquiries. Soft inquiries result from requests you make for copies of your credit report, requests from lenders for "pre-approved" offers, employment and tenant screening or requests from your existing creditors. Potential creditors can't see your soft inquiries, and these inquiries do not affect your credit rating. Hard inquiries result from requests you initiate yourself, such as credit card applications. These inquiries factor into the formula used to calculate credit scores because the number of hard inquiries on an individual's credit score tends to correlate with their credit risk. Consequently, applying for too many credit cards can hurt your credit score under certain circumstances.

Impact of Credit Card Applications

The impact of applying for credit cards varies for every person based on their specific credit rating. Applying for a credit card falls under the new credit applications portion of the FICO-scoring model, which accounts for 10 percent of your credit score according to Bankrate. An individual with an average or above credit rating could expect a less than five-point reduction from their score with a single credit inquiry, according to MyFICO. Inquiries tend to pose the greatest impact for individuals with few revolving accounts, a brief credit history or high balances on existing accounts.

Considerations

If your credit rating is less than stellar, apply for new credit cards only when necessary. When you submit applications for new credit cards, restrict your application period to a 14-day span. Fortunately, the FICO-scoring model compensates for consumers shopping around for the best credit offer and counts multiple hard inquiries within a 14-day span as a single inquiry. If you're concerned about the effect of existing inquiries, most creditors ignore them once they reach the six-month mark and all hard inquiries come off your report within two years, according to the Illinois Attorney General's Office.