How Can a Credit Score Drop 70 Points With a New Credit Card?

Just about everything you do with a line of credit affects most of the factors in the FICO formula. Opening a credit card is a good way to build credit, but be careful when you do this. You could see a drop of 70 or more points as soon as you open the account. Over time, however, this damage should vanish.

The Inquiry

If you applied for the card or responded to a "pre-approved" offer, the creditor performed a hard inquiry into your credit history. This counts about five points, because you requested credit. The damage from this could be more when your report shows several other inquiries in the past 12 months. Usually, your score is the most damaged once you acquire more than six inquiries.

Maxing Out the Limit

The FICO model takes away up to 45 points from your score when you max out a credit card, according to Bankrate. If you opened the credit card to get a discount on your first purchase or have a large annual fee -- common with retail cards -- you could start out with a high credit utilization ratio. You should use less than 35 percent of your available credit to max out your score. If you have a retail card, maxing out the limit or coming close to it right off the bat is a distinct possibility, because they typically have low limits and high fees that you must pay the first month.

Credit History

Fifteen percent of your FICO score comes from information pertaining to how long ago you started using credit and the average age of your accounts. Opening a new account does the most damage to your credit history when you have a limit profile. If you only had one account for five years, a new account immediately lowers the average age to 2.5 years.

Tip

Once you have more than seven revolving accounts, which includes more than credit cards, such as home equity lines, the FICO model takes away a few points. Since you already opened the card, closing it is probably a bad idea. You lose the credit limit on the card, stop building new, good history, and the bureaus report the closed account for 10 years. If you must cancel a card, cancel the new one, not your oldest account.