Does opening a new Credit Card lower my Credit Score?
No, this is a common misconception – see below.
Do you ever ask yourself WHY you think something is true? For example, I thought it was a certainty, a universal truth, that in-state college tuition was cheaper than out-of-state. Period. Guess what? Not true. Then you start to question…where did I hear that? Was it a magazine? Was it my uncle who’s never wrong? Is this a universal truth? Hmmm… And the result is that, in many instances, our reasons for thinking something are illogical and what’s worse, those ideas that we thought to be true create a fear inside us and keep us from acting in such a way that might just be very beneficial for us. This is the case for the common misconception that opening a new credit card (or miltiple) will lower your credit score…
I opened over 10 new credit cards and my score went up 133 points in 8 months
Disclaimer: This is not the only reason my credit score changed: correlation not causation
My FICO Score as of 5/24/2016
I am going to argue that #1 and #2 below are given:
Establishing and improving credit is important and the FICO scoring system is dominant
- FICO, a credit scoring system used by 90% of lenders in America, determines approval odds on a mortgage, auto loan, and credit card
- FICO is also used to determine how much money we get approved to borrow and our interest rates on the money we borrowed (if approved).
- It is unlikely that lenders will get traction on a new dominant scoring system anytime soon, but if anything else does become mainstream I’ll be sure to update you here first
There is a major misconception among American’s that applying for new credit cards will “hurt” or lower one’s credit score
- What’s more, in THIS USA Today article from April 2015, creditcards.com reports that 36% of Americans between the ages of 18 and 29 have never even had a credit card
- Do you fit into either of these categories?
- Bottom line: If you do not use credit, you will not have a credit score
*I go into great detail about Credit Scores, the FICO scoring system, and what it means for you and me in the FAQ section of my website.
For this blog post I want to focus on one thing:
Debunk the myth that opening a new credit card (or multiple) will result in a lower credit score
I am going to keep this as simple as possible, and I’m happy to discuss in more detail in the comments section below
First: Let’s understand how your FICO Credit score is determined:
Summary: 65% is determined by your payment history and available credit.
What does that mean for purposes of- Does opening a new Credit Card lower my Credit Score?
- It means that establishing credit, using credit cards, and paying off credit card balances in full each month IMPROVES your credit score.
- It means that a $5,000 balance on a $20,000 credit line (25%) is worse than a $5,000 balance on a $50,000 credit line (10%).
- The best way to increase your credit line from $20,000 to $50,000? Open a new credit card
- Doing those 2 things GREAT is 2/3 of the factors used to determine your score, which, outweigh the other 1/3 (2:1).
- So, even if you did everything wrong with the other 35% (3 factors) you would still be at 2:1 improve/help your score over lower/hurt your score.
Write below –> Questions/comments on “Does opening a new Credit Card lower my Credit Score?”
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