Does Getting a New Credit Card Raise Your Credit?

Building credit is essential if you are interested in obtaining financing and attractive interest rates in the future. To build up a credit profile, many people open credit card accounts. While opening a card account may not directly affect your score by a certain number of points, it can help increase your score indirectly.

Credit Utilization Ratio

One way that opening a credit card account could potentially affect your credit score is by altering your credit utilization ratio. This ratio is a measure that looks at how much open credit you have in relation to the amount of debt. When you have balances below 30 percent of the credit amount you have available, this reflects positively on you. By opening a new account, you could get a more favorable ratio, which would increase your score.

Regular Card Use

Simply opening a credit card account may not help you build your credit score that much. At the same time, opening a credit card account can help you because it gives you the ability to make regular purchases with it. If you make small purchases with your credit card and then pay off the balance each month, you can help build your score. The most important factor when calculating your credit score is your payment history. If you make your payments on time every month, this can significantly boost your score.

Dangers

Even though opening a new credit card could potentially help your credit score in some situations, it can also work as a detriment to your score. According to the credit-reporting bureau Experian, having too many cards with large balances or having too much credit available can hurt your credit score. This means that at a certain point, opening another credit card could be bad for your score. If you rack up large balances on your card, it will definitely hurt your score.

Credit Mix

Instead of opening only credit card accounts, you can get some additional types of credit to help boost your credit score. According to the financial information website Bankrate, having several different types of credit in your credit mix is beneficial to your score. For example, if you have an installment loan, such as a car loan or student loans, in addition to your credit card accounts, this can work in your favor. Focusing too much on credit card accounts could work against you.