How Much Will It Affect My Credit by Getting a New Credit Card?

Although finance experts tell consumers that they need to use credit to build a credit rating, a new credit card almost always damages a FICO credit score in the short-term. Also, the consumer has to use the new credit responsibly or the account can ultimately become a liability. The borrower should only take out an account if he can pay it off every month.

Identification

Because a new credit card affects almost every variable in the FICO credit scoring system, nobody can give a definite number of points the consumer may lose or gain. In general, any new line of credit tends to lower a score initially in the FICO system because obtaining new credit usually correlates with a lack of finances to pay for the consumer's current budget.

Length of Credit History

A new line of credit automatically costs the new borrower points in the category of "length of credit history," worth 15 percent in the FICO scale. This category gives weight to total length of credit history and the average age of accounts. If the borrower had two accounts each with a 12-year history, a third account brings that down to an average age of four years.

Credit Utilization Ratio

A new line of credit usually improves a credit utilization ratio--percentage of credit limit available--as long as the borrower does not charge anything to the new account, such as an annual fee, in conjunction with the opening of a new account. For example, say, the borrower only has one account with a $500 balance and a $1,000 credit limit. A new account with a $1,000 limit brings the credit utilization ratio from 50 percent down to 25 percent. Utilization ratio can account for 45 points or more when the borrower has a maxed out credit card, according to Bankrate.com.

Tip

The application for a credit card drops a score by up to five points, which may not seem like a much on a scale that ranges from 300 to 850, but six or more inquiries can do as much damage as a delinquent account. The borrower can avoid the inquiry by finding someone to add him as a co-signer or authorized user on an existing account. However, the borrower then shares the payment history on the card with the primary borrower. If the borrower does not have any credit cards, a new credit card account is critical to a good score, because mix of credit counts for 10 percent in the FICO system.