Yes, your credit score can go down when you apply for a credit card. Every time you apply for a credit card, the card issuers view your credit file, resulting in a hard inquiry on your credit reports. One hard inquiry will lower your credit score by 5-10 points. Sending in multiple credit card applications in a short period of time may result in dinging your credit score by a lot of points due to multiple hard inquiries.
Even if your credit score goes down when you apply for a credit card, the effect will be short-term. This is because a new credit card will also affect other factors used to calculate your credit score. For example, your credit limit will go higher which might reduce your credit utilization. Improved credit utilization can boost your credit score. In addition, the new card can improve your credit mix which is another factor in your FICO score calculation. As you utilize your credit card and pay off your balances on time, the points you lost from a hard inquiry will be recovered in a short time.
Does my FICO score go lower when I get denied credit?
Whether you get approved for a credit card or denied, a hard inquiry will still appear on your credit report. The inquiry is not based on the decision of your credit card issuer. Instead, it is solely based on the fact that a lender checked your profile to see if you qualify for that credit card.
Your FICO score or Vantage Score will then go lower as a result of that hard inquiry in your credit report. For this reason, the best way to minimize the impact of a credit card application on your credit score is to apply for the right credit card that you qualify for.
You need to make sure that you qualify for the credit card you want and use the right strategies to get approved. Even if you will get a hard inquiry, at least your application will be accepted. This will prevent you from applying for other credit cards and accumulating multiple hard inquiries on your credit reports.
Related: How to apply for a credit card and get approved?
How long do hard inquiries stay on your credit report?
Besides lowering your credit score, a new credit card account will result in a hard inquiry on your credit report. Each hard inquiry will knock off a few points from your credit score. In addition, a hard inquiry will stay on your credit report for 2 years, but the inquiry will only affect your credit score for one year. After two years, the inquiry will automatically fall off your credit reports.
In case the inquiry stayed on your credit report longer than it should have, you can dispute it to credit reporting bureaus (Equifax, TransUnion, and Experian).
How to apply for a credit card the right way?
Since your credit score will go lower when you apply for a credit card, it is critical to apply for a credit card that you qualify for. Don’t just submit a credit card application because you like the card. Submit your application on a credit card that you have more chances to qualify for.
Getting approved for a credit card from a single application will prevent you from submitting multiple applications. Again, the more credit cards you apply for the further your credit score will drop due to multiple hard inquiries. Since, you cannot prevent a hard inquiry from appearing on your credit report, the best course of action is to minimize the number of hard inquiries on your credit report.
Use the following tips when applying for a credit card to get approved on the first application.
- Understand why you need a credit card (shopping, gas, groceries, travel, business, credit building, etc.)
- Evaluate your credit score and the health of your credit. People with good credit qualify for loans at a lower rate compared to those who don’t. In addition, A good credit score will help you secure better terms and a credit account with better features and benefits.
- Consider paying off some of your current debts to improve your DTI ratio.
- Choose a credit card that matches your current financial and credit-healthy standing.
- Get pre-approved or pre-qualified for the card.
- Compare multiple credit card offers to make sure that you get the best deal.
- Pick the right card (the card that you can easily qualify for given your current situations)
- Complete the application (online or in person) and submit it.
- Wait for one to 2 weeks to get your card in the mail.
Related: What should you do when you get denied credit?
How do I get hard inquiries removed from my credit report?
If you have overdue hard inquiries or a reported inquiry by mistake, you can have them removed. A simple and effective way to remove a hard inquiry from your credit report is to submit a formal dispute to either credit reporting bureaus, the company that created the inquiry, or both.
For example, if you applied for a credit card more than two years ago and the inquiry still shows on your credit report, you can simply dispute it credit reporting agencies that reported it and/or your credit card company. Your dispute letter should include all evidence, details, and information regarding the dispute and inquiry.
How do hard inquiries affect your credit score?
If you are wondering whether a hard inquiry will knock off a lot of points from your credit score when you apply for a credit card, don’t worry much. Applying for a credit card will lower your credit score only by a few points.
According to CapitalOne, the effect of a hard inquiry on your credit score is minimal especially when you have good credit. Hard inquiries account for only 10% of your FICO score. Each hard inquiry will drop your credit score about 5 points on average. Since different companies use different scoring models, you might see a slight difference in your credit scores from different credit scoring agencies. It is possible that your credit score can drop as much as 10 points from a single hard inquiry.
Does your credit score go up when a hard inquiry drops off?
A big misconception about hard inquiries is that people think their credit scores go higher when a hard inquiry is removed. Yes, your credit score will go lower when a hard inquiry is made. But removing the inquiry will not increase your credit score. By the time your inquiry falls off, your credit score will have recovered assuming that you make your payments on time and use your credit card responsibly.
Your credit score will not change when a hard inquiry falls off your credit report. This is because a hard inquiry does not affect your credit score after 12 months from the date it was created. As a result, your score does not change when the inquiry is removed 24 months later.
Mistakes to avoid when applying for a credit card
Since your credit score will go lower when you apply for a credit card and the card can be a financial burden in the future; it is important to avoid common mistakes people make when applying for their credit cards. The following are the top mistakes to avoid when applying for a credit card.
- Not shopping around for a lower interest rate and APR.
- Choosing the wrong credit card.
- Picking a credit card with an annual fee.
- Apply for a credit card without enough rewards and benefits.
- Overlooking fees such as late fees and some transaction APR such as the balance transfer fees, and cash advance fees.
- Apply for a credit card you do not qualify for.
- Apply for too many credit cards in a short period of time.
- Not understanding how to properly use credit cards.
- Not understanding your credit limit and how your credit card spendings affect the health of your credit.
Why is your credit report important?
Your credit report is important because it helps lenders to decide how risky it is to lend you money. That is the information reported on your credit report is used by different lenders to approve you for a loan and other forms of credit accounts. Other companies such as insurance companies use the information on your credit reports to determine the insurance rate you will pay and whether to approve your application or deny it.
Your credit reports also serve as a resource in your credit score calculations. That is credit reporting agencies use information from your credit report to calculate your credit score.
Due to the importance of your credit reports, it is important to keep your credit report clean and accurate at all times. A good practice is to regularly clean up your credit report. You can get a free copy of your annual credit report from each credit bureau and check their accuracy. In case there is an error, inaccurate information, or removable negative items on your credit report, you can submit a formal dispute to credit bureaus and your creditors.
