How Applying for Two Credit Cards Affects Your Credit Score

Cutting credit cards is a way to stop collecting debt.
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You may be interested in finding the best credit card for a balance transfer or the best airline credit card. You might be looking for the best cash back credit card or the best no annual fee credit card. The best idea may be just to look and not apply for more than one card. It could be that applying for more than one card is better. Applying for multiple credit cards may have an impact on your credit score, but it may not. It depends on your situation.

Your Credit Score

Your credit score is what lenders and other parties use to find out if they should grant you credit. The credit score is used if you apply for a credit card or a loan. It may also be used by potential landlords or mortgage companies. There are five components of your credit score:

  1. Payment history
  2. Credit utilization
  3. Length of credit history
  4. New credit/Credit inquiries
  5. Credit mix

Applying for multiple credit cards primarily affects two of them, credit inquiry and credit utilization. Credit utilization composes 30% of your credit score while credit inquiries are only 10% of your credit score.

Credit Inquiries

The credit inquiry part of your credit score may be impacted when applying for multiple credit cards. Credit inquiries are only 10% of your credit score so the impact is minimal.

Each time you apply for a credit card, there is a hard inquiry placed on your credit report because the potential lender has actually pulled your credit report. A hard inquiry may or may not affect your credit score.

If you have had a lot of hard inquiries, possible lenders will be worried about your risk of default and your application for a credit card may be denied. The number of inquiries that would be concerning depends on many factors, like the amount of time since you opened your last account, when your last inquiry was, and the strength of your credit history. Some people will be affected by hard inquiries when applying for multiple credit cards and some won’t.

  • How Long Hard Inquiries Impact Your Credit Score: Hard inquiries will remain on your credit report for two years but will only impact your credit score for one year.
  • How Much Hard Inquiries Impact Your Credit Score: Each hard inquiry will only impact your credit score by a few points. If you only have a few accounts and a short credit history, you may see more of an impact on your credit score than if you have more accounts and a longer credit history.

If you engage in credit card churning, you are likely to have many accounts open at once and you may open accounts at the same time in order to take advantage of signing bonuses and loyalty programs. Churning can affect your credit score since it becomes apparent on your credit history. In this case, the impact of applying for multiple credit cards may not be minimal and your credit score may be negatively affected.

Credit Utilization

Credit utilization is 30% of your credit score and is impacted by applying for multiple credit cards. Most experts say that if you keep your credit utilization under 30%, that is good enough to keep a good credit score. If your total credit utilization on all your debt, including all credit cards and loans is 30% or less, that also bodes well for your credit score. If you open two new credit card accounts, that will raise your credit limit and improve your credit utilization. It might also cause a small hit to your credit score due to two hard inquiries.

Your credit utilization ratio is how much debt you owe on your credit card compared to your credit limit. If you have a credit limit of $2,000 and you owe $500 on the card, you can find your credit utilization:

  • Credit Utilization = $500/$2000 = .25 or 25%

Even though your credit utilization ratio will improve if you open multiple credit card accounts, you may find that lenders are concerned with your ability to make the payments on several cards. The ideal credit utilization under 30%. You will find that those people with the highest credit scores usually have credit utilization ratios of 7% or lower. 

How to Avoid Mistakes When Applying for Multiple Credit Cards

  • Open new accounts no more often than every 90 days even if you are trying to get signup bonuses or other rewards. Otherwise, your credit score may be negatively impacted.
  • If you have multiple credit cards, pay off your balances in full every month to keep your credit utilization ratio as low as possible.
  • Having multiple credit card accounts is not necessarily bad, if you manage your credit well, since it will decrease your credit utilization.
  • Do some strategic planning before applying for multiple credit cards. Different cards have different purposes. If you already have a good travel card, for example, you might want to open another credit card account, with a lower interest rate or a zero percent promotional rate that allows balance transfers. Opening more than one account also allows you to have an additional credit card in case of emergency.
  • Always be on top of your personal finances regarding credit cards. Applying for multiple credit cards can easily damage your credit score unless you are smart about what you are doing. If you are, you can be prepared for emergencies and even reap money in the form of signup bonuses, cash back, and loyalty rewards.
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Article Sources

  1. myFICO. "What's in My FICO Scores?" Accessed Oct. 4, 2019. 

  2. myFICO. "New Credit," Accessed Oct. 4, 2019. 

  3. Equifax. "Understanding Hard Inquiries on Your Credit Report," Accessed Oct. 4, 2019. 

  4. myFICO. "Credit Checks: What Are Credit Inquiries and How Do They Affect Your FICO Score?" Accessed Oct. 4, 2019. 

  5. VantageScore. "Did You Know…The Optimal Credit Card Utilization Percentage Is…" Accessed Oct. 4, 2019. 

  6. Experian. "What Is a Credit Utilization Rate?" Accessed Oct. 4, 2019.