Is Opening Credit Cards Good for Your Credit Score?

Opening new credit card accounts has both short-term and long-term effects on your credit score in a few categories. Although each new card generally hurts your score initially, the new account can have significant benefits in the future, depending on how you use and pay off the credit cards.

New Credit Effects

Approximately 10 percent of your credit score calculation is based on new credit cards and loans, which hurt your credit score. This is the main drawback to opening credit cards. Part of the penalty results from credit inquiries, which occur when credit card companies check your credit report to help evaluate your application. Therefore, you can hurt your credit score just by applying for credit cards, even if none of your applications is approved. In addition, once you receive a new credit card, your score is negatively affected because you own a new account. The scoring formula also considers the proportion of credit cards that are new. In general, the new credit penalties affect your credit rating for up to one year after you open each credit card.

Credit Utilization Effects

One benefit of opening credit cards is having more available credit, which can increase your credit score. The amount of debt you have accounts for 30 percent of your score, and credit utilization is an important factor in this category. Your credit utilization ratio is the balance on each credit card divided by the credit limit of each card. Your overall utilization, which is the total of all your credit card balances divided by all their limits, also affects your score. The higher your credit utilization ratio on individual cards and overall, the more it hurts your credit score. When you open a new credit card, the card begins with a utilization of zero percent, which can help your score. The new credit limit also decreases your overall credit utilization. However, as soon as you start using the new credit cards, their utilization ratios increase, which negates some of the initial positive effects.

Payment History Effects

The most important factor in your credit score is your payment history, which accounts for 35 percent of the score. Opening credit cards can either help or hurt your payment history, depending on how you use them. If you purchase only what you can afford and pay your bills on time every month, having more credit cards will help build a more consistent payment history. However, if you lose track of bills or use the credit cards to make purchases you cannot afford, you could miss payments, which will hurt your credit score.

Bottom Line

Opening a new credit card generally causes a drop in your credit score because it is a new account, followed by a gradual increase if you use the card wisely over time. Therefore, if you are trying to boost your credit score in the short term -- to qualify for a lower interest rate on a mortgage, for example -- opening credit cards probably will not help. However, if you are trying to build your credit in the long term, you should have a few credit card accounts you use regularly and responsibly. Long-term responsible use will eventually compensate for the initial credit score penalty.