Here's How Applying For Multiple Credit Cards Affects Your Score
When you apply for a new credit card, it counts as a hard inquiry on your credit report.
And if you rack up too many of these inquiries, they can hurt your credit score.
Here's what you need to know about timing your credit card applications in a way that minimizes any negative impact on your credit score.
What makes up your credit score?
Lenders use your credit score to assess what kind of a financial risk you pose.
When your score is in the good to excellent range, lenders know they can trust you to pay your bills on time.
On the flip side, a low credit score makes lenders worry you can't be counted on to send timely payments. When your score is low, it can be difficult to qualify for credit.
Your credit score is more than just a three-digit number. It's calculated using five different factors, each of which is assigned a certain weight.
1. Payment history
Your payment history makes up 35 percent of your credit score, making it the most important factor in calculating your score.
2. Credit utilization
Credit utilization, which makes up 30 percent of your score, is the ratio of how much total available credit you have compared to how much of it you're using at any given time.
A general rule of thumb is to use no more than 30 percent of your available credit.
For example, if your credit card has a $5,000 limit, you'll want to keep your balance under $1,500. Ideally, your credit utilization should be as low as possible.
3. Credit history
This is how long you've been using credit, and it makes up 15 percent of your credit score.
While some people believe that avoiding credit altogether is a safe bet, this isn't actually true.
4. New credit
New credit accounts for 10 percent of your credit score.
Having too many new accounts can hurt your score, as it makes lenders suspect you can't handle your current financial obligations.
5. Mix of credit
Your mix of credit is the amount of variety among your various accounts, and it makes up 10 percent of your credit score.
The impact of credit inquiries
When you apply for multiple credit cards within a short timeframe, these get reported as hard inquiries on your credit report.
While one or two hard inquiries probably won't affect your credit score, multiple inquiries can have a negative impact, especially if you have little or no credit history.
When lenders see several hard inquiries pop up on your credit report, they may assume you're in a desperate financial situation—and deny you credit as a result.
Each hard inquiry will show up on your credit report for two years, but they stop affecting your score after 12 months.
It's also worth pointing out that multiple hard inquiries for other types of credit won't hurt your credit score like multiple credit cards will.
For example, if you're shopping around for an auto loan or mortgage, lenders know you might need to apply to several different lenders.
As long as you make all these applications within a month or so, these types of inquiries shouldn't affect your credit score.
The impact of credit utilization
As noted above, credit utilization accounts for 30 percent of your credit score.
Because it's a factor that carries so much weight, it's important to pay attention to your available credit versus how much of it you use.
While it's true that opening up new credit cards will increase your total available credit, you have to balance this against the negative impact of having too much new credit.
If lenders see that you've recently opened several new cards, they might worry about your ability to handle additional debt.
3 tips when applying for multiple credit cards
If you're in the market for a new credit card, it's important to be smart about how often you submit applications.
Here are three tips to keep in mind.
- Space out your credit card applications. Avoid applying in bursts, as this will stick you with multiple hard inquiries within a short time period. Instead, keep some space between applications. There aren't any hard or fast rules for how much space you should keep between card applications, but 90 days is a safe time frame.
- Do your research. Don't just pick a bunch of credit cards and start filling out applications. Rather, take time to research what each card offers, so you can see if it's a good fit for you. Some credit cards are designed for a specific purpose, such as travel rewards or balance transfers. If you go in knowing which cards suit your needs, you can avoid filing unnecessary applications.
- Pay your balance every month. Paying your balance in full every month allows you to use credit without paying interest. A zero balance also helps boost your credit utilization, which is a big factor in your credit score.
What if your application is rejected?
Getting a rejection letter in the mail can sting.
After all, no one likes to be told they're not creditworthy.
But there's no reason to feel down—or make missteps that can damage your credit score.
Think twice before applying other places
If you get denied a new credit card, think twice before applying for a different one. Instead of scrambling to submit more applications, find out why the lender rejected you.
It's important to identify the reason the lender declined your application.
Once you understand why the lender said no, you can work on fixing whatever negative items are holding you back.
Read the rejection letter
The first step is to carefully read the credit card company's rejection letter—also known as an adverse action letter.
In it, the lender should give you the specific reason or reasons you were denied.
Get your free credit report
From there, order a copy of your free credit report.
Rebuild your credit
As you work through the dispute process, you can also improve your credit score by using strategies to rebuild your credit.
Why spacing out your applications might be a better idea
Opening a new credit card will likely drop your credit score by a few points, but most people recover quickly, as the additional available credit boosts their credit utilization.
However, you can easily negate this boost when you take on too much new credit at once.
To prevent this, adopt a slow and steady approach if you plan on opening multiple credit cards.
Instead of applying for several cards all at once, take it one card at a time, spacing out your applications by at least 90 days.
This allows you to improve your credit utilization without seeing your credit score drop due to multiple hard inquiries.
About the Author
Mike is a recognized credit expert and founder of Credit Takeoff. His credit advice has been featured in CNBC, Investopedia, CreditCards.com, Bankrate, Huffpost, The Simple Dollar, Reader's Digest, LendingTree, and Quickbooks. Read more.