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One of the more confusing aspects of rewards travel is how applying for credit cards affects your credit score. If you're considering applying for a new card, you might wonder if adding a credit card can improve your credit score. Conventional wisdom has it that applying for more credit cards will negatively affect your credit score and is somehow frowned upon by lenders and credit providers. But that’s not necessarily the case.
Your credit score does take a temporary dip when applying for new cards, particularly if applying for more than one in a short period. But provided you do the other things to maintain healthy credit — like paying your credit card accounts on time and in full every month — adding more credit cards to your points and miles arsenal can actually increase your credit score over time.
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How Are Credit Scores Calculated?
Our post on how to manage your credit score covers this in more depth, but here's a recap. Credit bureaus calculate your credit score on the following criteria for your FICO score:
- 35% payment history: Late payments represent a much higher credit risk for lenders
- 30% amounts owed: Also referred to as credit utilization rates or available credit versus how much is in use
- 15% length of credit history: Average age of revolving debt accounts
- 10% new credit: Hard pulls (credit inquiries from applications) and new accounts show here
- 10% credit mix: Ensure you have diverse types of credit, like car loans, mortgages, guarantor accounts, credit cards, etc.
Essentially, lenders want to see you diversifying your credit portfolio over a sustained period, paying your bills on time, and keeping your utilization rates low. If you tick all these boxes, credit providers are often more than happy to offer you new cards and financial products — or even increase your credit limit on existing cards — as you represent a “safe bet.”
We recommend keeping a close eye on your credit score, checking it weekly via a free FICO access offered on cards like the Citi Strata Premier℠ Card or Amex EveryDay® Credit Card. You also can get a free copy of your detailed credit report every week.
Alternatively, use a service like Credit Scorecard from Discover or Credit Karma to ensure cards and payments are updating on your credit file correctly. This way, if anything untoward pops up that gives you cause for concern, you can immediately address the issue. For even more options, check out the full list of free credit score and reporting services.
Why Do Credit Scores Dip When You Get a New Credit Card?
When you apply for a new credit card, the credit provider performs a credit check, otherwise known as a “hard pull.” A hard pull gives the potential lender access to your entire credit report, which can help them decide whether you’ll receive approval for the card, the amount of credit you'll be provided, and the interest rate on the card. Hard pulls or credit inquiries cause a small, temporary drop in your credit score. Expect an immediate drop of two to five points per inquiry. However, this could be higher if you have limited credit, such as those applying for their first credit card.
Too many inquiries in a short timespan will cause a more pronounced dip in your credit score; that's one of the reasons we recommend spacing applications out over a longer period. The dip in your credit score starts to fade within weeks of the application. Typically, you'll see the impact from that inquiry fade within six months; at the 12-month interval, that hard inquiry likely has no impact on your credit score (depending on the exact scoring model and version used).
From this point on, provided you follow the credit card best practices set out above, adding a credit card can improve your credit score, helping to increase your credit score over time. That's because you'll have more available credit and additional accounts showing good behavior on your credit report.
How Adding a Credit Card Improves Your Credit Score
Opening a credit card account can improve your credit score by lengthening the combined age of your credit accounts, lowering your credit utilization rates, diversifying your credit portfolio, and showing your ability to manage a significant amount of revolving credit responsibly. These are all factors that play key roles in calculating your credit score.
Extend the length of your credit history
One of the key factors credit agencies look at when calculating your credit score is how long accounts have been open. Having just one or two accounts open for a short length of time may count against your score initially, but over time it adds to the overall length of your credit history, gradually increasing your credit score. One of the reasons we recommend downgrading credit cards instead of canceling them outright is that credit lines with a long history can help improve your credit score. Opening a card now won't help in this area, but keeping it open for years to come will.
Reduce your credit utilization rate
Credit utilization plays a huge role in determining your credit score. Almost a third of your credit score is calculated by your use of existing lines of credit, with lower utilization rates looked upon more favorably than high ones. So, how do more credit cards help lower your utilization rates?
The more credit cards you have, the higher your total available credit, which lowers your utilization rate, as long as you keep the same spending habits. Here's a simple example of how that could work:
- If you have one credit card with a $10,000 limit and you spend $3,000 per month, your utilization rate is 30% ($3,000 / $10,000).
- If you get a second credit card with a $10,000 limit and still spend $3,000 per month on cards, your utilization is now 15% ($3,000 / $20,000).
- Imagine if you have five credit cards, each with $10K limits ($50K total) and you still spend $3K per month. Your utilization rate is now 6% ($3,000 / $50,000).
Bottom Line: Does Adding a Credit Card Improve Your Credit Score?
So, does adding a credit card improve your credit score? Absolutely! If used responsibly and paid off in full each month, rewards-earning credit cards can not only help push your credit score higher but can provide access to amazing travel experiences for pennies on the dollar. And, higher credit scores mean you can be approved for better cards.
If you want to live in the points and miles world for the long term and exchange credit card rewards for excellent travel adventures, you need to look down the road — not just at the present. Mix up the types of credit you access, don't apply for too many cards in a short time period, keep your credit utilization rate low, and pay your accounts off in full each month. And make sure any card you pick up helps you focus on your travel goals.
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I read something recently that the credit bureaus were changing the way (mix and percentage of factors) they use to determine Vantagescores, but not FICO scores.
here you go: https://awardwallet.com/blog/big-changes-coming-credit-scores-calculated/
It’s also a culture thing. In Europe (particularly Eastern Europe) credit cards are relatively unpopular.
Great breakdown of credit scores and how having more credit cards can improve your credit score. Thanks for the helpful information.
Based on my (limited) experience, recent credit card applications don’t hurt mortgage chances as much as many sites lead you to believe. Obviously, take that with a grain of salt, it being one data point and it wasn’t like I took on hundreds of thousands of available credit.
Kyler, you’re spot on. Any mortgage issuer will want to know about recent card applications but as long as you have a reasonable explanation for anything in the past 2 years that is new they’re typically fine with it. The bigger issue is any impact to your FICO score, which could decrease your chance of the best possible interest rate. Again, everything varies on a case by case basis, but your logic is sound.
The more cards I get, the better my credit score becomes. I used to carry a score in the 775 range with the big 3 credit bureaus but when I paid my mortgage off a few years ago, my scores, including Fico, have been in the 800-825 range. I also think that paying cards off completely each and every month and not carrying a balance has a lot to do with my current scores.
My score dipped 66 points for about two weeks when I bought a new car. The dealer had 5 different banks pull my credit in addition to the dealer pulling it. It is now back to 825 where it should be.
This is so true! I used to only have one credit card for everything. I could not understand why my credit would not increase. I began to apply for everything and soon later, because of my debt to credit ratio, my scores shot up.
good advice – though opening new ones can reduce average credit length quickly
Absolutely; however average age of accounts, as compared to other aspects is a relatively small amount of your overall score makeup.
This is an interesting fact, as in Germany it is the way around – like totally opposite to that Idea – the more CC’s you’re holding, the worse your CreditScore is turning.
So back here one has to decide carefully, which Card to apply for.
FICO tells me that a hard pull stays on your record for 2 years, not 6 to 12 months as in the article.
Also, it should be pointed out that individuals are penalized if they do not have varied credit (installment loans, etc.). For one who does not have any debt at all, I can see that this is considered a negative (rather than a positive).
Finally, I have been an American Express Card holder for over 40 years, but I have changed Amex cards over the years in response to various underlying benefits, or upgrading from a Gold to a Platinum Card. Amex seems not to include the ‘total’ history when they do their reporting. Very annoying.
Chase, a hard pull absolutely stays on your credit report for 2 years. That said, the impact of that hard pull on your credit score drops over time. After 6 months most of the impact is gone and after a year, with FICO scoring models, you’ll find that there is no impact on your score with that hard pull. Yes, it’ll remain on your report, but its impact on your score is gone.
lots of details here but if you are willing to work through it all it will pay off
Another great article insight into travel related topics. I didn’t know about the small dip in your credit rating when you apply for a new card but good to see it recovers quickly.
Thanks for the detailed insight into the workings of credit scores. I was myself trying to give six months gap between each new application at Amex.
Thanks for the information. We use several credit cards and my biggest fear was that my credit score would dip. So glad to know this is not the caee. Will use the info here to increase card use.
Yeah, but most of the times people open new lines of credit when they need the money and since opening new lines of credit reduces your score temporarily, it has more adverse effect than positive.
I find that owning a house also helps. I know this sounds silly, but after a few years of appreciation in your primary residence, those higher credit limits offers come quick and fast.
I usually open only one new credit card a year and I pay my credit cards off each month so I have a good FICO score.
Thanks, always good to see a reminder about all of this…
i had excellent credit before starting to play the points and miles game and my score has only increased (with temporary dips as described in the article) since that time. The key is always paying off your balance each month.
Yeah the credit card companies want you to spend on their cards and pay them fees and interest as necessary as long as you pay on time. Paying off all balances at the statement is always the best idea though
Very interesting and thorough explanation of the full scenario of how new and varied credit applications affect overall credit. Thank you.
i told this to my friends many times but they dont believe me lol
I used to hate leaving the cards I don’t use open, I can see over time it has helped my score though. Old habits are hard to break!
I have had so many credit cards that have only helped me increase my credit in the long run due to the higher spending limit between all the cards. My credit utilization ratio because of them is really good and in the long run my credit gets always higher.
It’s a very temporary dip if you have a decent history.
What is the typjcal minimum credit score for Travel reward cards? After a job loss we are climbing back out of a big hole. Credit score is 657 through Experian on credit tracker. In June I co-signed for a car for my daughter. Credit score was 675 then fell about 45 points for a couple of months then went to 657.
This is true in my experience I’ve had quite a bit of credit cards but with each application spread over time it really hasn’t had any negative impact on my credit score.
Great overview. I still want to cancel a couple of cards I no longer want though (even though I know I’m better off keeping them open)!
It is healthy to want to “clean up” — but cleaning up isn’t always the best thing. Just get a proper folio to keep all your cards organized!
It is a great overview.
When you have cards that you really don’t want. Just use a pair of scissors, don’t ruin your credit by cancelling.
Well as long as they are not your oldest cards you should be ok
This might be the thing that most people I talked to are surprised to learn. Less utilization (more credit) is so beneficial in the long run. Obviously money management matters most though.
I was freaked out when my score dipped heavily after opening a few accounts this year but now my score is about as high if not higher than when I started. Definitely useful if you have no immediate (~6 months) use for credit
I never knew how each customer’s score was calculated. It is good to know such information.
Thanks for the info and breakdown. I don’t more than a few points temporary possible affect on my credit score if I get multiple new credit cards around the same time.