Will Getting Another Credit Card Boost My Credit Score?
When trying to find ways to boost your credit score you can often find that getting another credit card might be the way to do it. But is this true? Well, it depends. In this post, we’ll explain how getting another credit card could increase your credit score or scenarios where it could potentially hurt it.
The Basics of Credit
Credit and credit scores can be as complex as you make it. There are many different factors that will determine your credit score that are listed below:
- Amount of available credit
- Amount of used credit
- Average age of credit
- Number of credit accounts
- Number of on time payments
- Number of hard inquiries
- Diversity of credit accounts
- Foreclosures, bankruptcy, late payments, or missed payments
Different credit bureaus will have slightly different formulas to calculate your overall score based on these factors. This means that for one bureau you might have a higher score than another. When applying for some lines of credit, they might choose to pull your credit for the three main bureaus and take the average between them.
How Can Another Credit Card Increase Credit Score?
Because one of the factors that makes up your credit is the number of opening account, by being approved for another card, you could potentially increase your score. There are a few caveats however. Notice that another factor of your credit score is the number of hard inquiries. By applying for another card you’ll gain a hard inquiry. So how can a new credit card increase your score?
Increase in Amount of Available Credit
By getting approved for another credit card, you’ll get a boost in your available credit and therefore decrease your overall credit utilization. This will have a positive impact on your credit score.
The longer you keep the card and continue to make on time payments, the more likely you are to get a credit limit increase and therefore increase your available credit even further.
Increase in Total Number of Accounts
The second way a new card can increase your credit score is by increasing your total number of open accounts. Credit bureaus believe that the more creditors that “trust” you by loaning you money, the more you should be deemed trustworthy.
How could an additional credit card hurt my credit?
Just as opening a new card could have a positive impact on your credit score, you should also be aware of potential negative impacts.
How will an additional card affect my average age of credit?
A new line of credit will have a negative impact on your average age of credit. For example, if you have 1 line of credit currently that is 5 years old and you are approved for another card, your average age of credit will drop to 2.5 years which will most likely affect your credit.
Additional Hard Inquiry
By applying for a new card, you’ll gain an additional hard inquiry which has the potential to bring your score down depending on how many hard inquiries you have. Hard inquiries disappear from your credit history after two years. Typically it is acceptable to have between 3-4 hard inquiries in this two year period. If you already have 4 hard inquiries, it might be worth waiting until one of them drops off to apply for a new card.
The other thing to note about inquiries is that you are charged the inquiry when APPLYING for a card, whether you are approved or not. This means that you shouldn’t go applying for lines of credit that might be “out of your range” otherwise you risk landing a hard inquiry without being approved.
Having too many accounts
Credit bureaus want you to have open accounts, but there is such thing as too many. If you’re going on 30+ accounts, you might want to back off. This can show signs of stretching your finances and not being able to afford all of your lines of credit. Typically this is not an issue for most, but it’s worth mentioning.
Other Benefits of Getting Additional Credit Card
Improving your credit score isn’t the only possible benefits of getting another credit card. Many cards will come with a nice sign up bonus which can score you a few hundred extra bucks.
Another benefit of getting a new card could be for better rewards. If you have a card that offers a straight 1% cash back, you might be able to find a card to better suits your spending. For example, the Capital One Savor Card offers 4% back on dining and entertainment which is significantly better than 1%. Be sure to shop around to see which card is best for you. You can check out all of our credit card reviews here!
Lower Interest Rates
If you’re still using your first credit card, the chances are are you might be overpaying for credit card interest. After building your credit, you can get approved for a card with a lower interest rate which can save you money. Read to learn what a good credit card interest rate is here!
Play the long game
Improving your credit score is not an overnight process. When deciding whether or not to get another credit card, think about your long term credit. While you’ll might notice a drop in your credit score after applying, six months to a year later you should see a nice increase in your score assuming you keep your credit utilization low and continue to make payments on time.
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