Too many or just right? Here’s how that new credit card affects your credit

  • Rose Kennedy
  • For the AJC
3:11 p.m Monday, Nov. 6, 2017 Business and Money news

A newly embossed credit card can raise your spirits just like a decadent dessert or a sunny spring day. But is the shiny new card feeling worth the impact on your credit?

The answer depends on your spending history, borrowing goals and ability to handle spending power, according to credit experts like NerdWallet and Experian. 

Here's how a new credit card will affect your credit at every stage of the process:

Applying for a credit card has an immediate impact on your FICO, or credit score, because the credit card issuer will check your credit report. 

This generates a "hard inquiry" that can cause your credit score to drop by a few points, according to Experian. "It's called a hard inquiry because it represents a potential new debt that doesn't yet show in the report as an account," the credit bureau noted. "That unknown debt represents possible risk." Each hard credit inquiry will stay on your report for two years, but most people regain the points within about six months of a credit card application. "But if your credit score was poor to begin with, those points might really count," NerdWallet noted.

Avoid applying for a new credit card in the three to six months before borrowing for a major purchase or mortgage. That way you can keep your score at its highest to get the best possible interest rate for the loans.

Applying for multiple credit cards in a short period of time isn't like applying for multiple home loans, because that is a situation where the credit bureaus expect you to comparison shop.

Instead, each credit card application incurs a separate "hard inquiry" and contributes to your credit-risk rating. "Several different inquires for new plastic in a short span of time will cause your credit score to drop significantly," according to NerdWallet. The blog encouraged those who have already applied for too many credit cards at once to realize their credit scores will bounce back. "Just be sure you pay on time and keep balances low and wait six months to a year before you apply for another one."

To estimate the impact of credit application scenarios without incurring hard inquiries, check out NerdWallet's free debt calculator and credit score simulator.

According to Experian, when a new account opens, you may notice a dip in scores when it first appears in your credit report. "However, if you keep your balances low and make all your payments on time, your scores should rebound," the credit bureau noted.

The whole topic of new credit cards and how they affect credit involves many myths, according to the Magnify Money blog. Avoid these sensible-sounding steps and use your credit cards in a way that will help build your credit score:

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