Why Does Your Credit Score Lower When You Get a Credit Card?

Credit scores are based on a number of different factors and simply obtaining a new credit card can cause your score to dip. The fact that the credit issuer checked your credit score can have a slight negative impact. Rolling a balance over from an existing card or cards can also hurt your score.

Credit Inquiries

Equifax use the FICO scoring system that gets its name from the scoring system's creator, Fair Isaac Corporation. Experian and TransUnion, the other U.S. based credit bureaus, also use a similar scoring system. Credit scores at all three bureaus take "new credit" into account when determining scores. This category accounts for 10 percent of a person's credit score and it includes the number of credit inquiries someone had. When you apply for credit, your score slightly decreases whereas if you apply for credit frequently, it can cause your score to drop dramatically because it appears you may be desperate for money.

Length Of History

Your average length of credit history accounts for 15 percent of your overall credit score. Bureaus simply look at when you opened a credit card, took out a car loan or mortgage and how long, in months, you have been paying on the debt. The longer the average account history, the better your score. When you open a new credit card account, it immediately reduces the average length of your account history and that impacts your score.

Consolidating Balances

Your account balance as a percentage of your overall credit limits accounts for 30 percent of your credit score. This score reflects your total credit usage as well as the usage of each particular credit card or loan. Taking out a new card initially reduces your overall credit utilization because the new card has no balance. However, if you transfer existing balances onto the new credit card and end up with a high balance on that card, it hurts your score because that card has a high utilization rate.

Considerations

Occasional credit inquiries only have a short-term impact on credit scores whereas late payments and charge-offs have a lasting impact. The three major credit bureaus separately gather information from your creditors and the three bureaus' reports are not necessarily always the same. You are entitled to an annual free credit report from each bureau and if you find any errors you can contact the bureau directly to request a correction.