Whether online or in person, it’s never been faster or easier to apply for a credit card. But there’s a price to pay for seeking new lines of credit whenever your heart desires.

The fact of the matter is your credit score dips each time you apply for a credit card, loan, or any other type of credit.

So, next time you feel inclined to apply for a new piece of plastic, pause to consider how a credit card fits into your longer-term financial plan.  

Why Applying for a Credit Card Can Hurt Your Credit Score

Whenever you apply for a credit card, the lender will contact one or more of the three national credit bureaus (Experian, Equifax, and TransUnion) to request a copy of your credit report. This is known as a hard inquiry, and the lender will use the information from the report to decide whether to approve your request for credit.

Unlike a soft inquiry, which has no impact on your credit score, a hard inquiry — also known as a hard pull or hard credit check — usually lowers your credit rating temporarily.
 
The way lenders see it, when you apply for a new credit card or ask for a spending limit increase on an existing card, you’re about to ratchet up your use of credit. This means you’ll be taking on and living with more bad debt, which could make it harder for you to pay your bills on time or meet other financial obligations.  

In other words, they consider you a bigger credit risk. This uncertainty is reflected in your credit score until you prove you can use new credit wisely.  

How Much Does Your Credit Score Drop When Applying for a Credit Card?

Applying for a credit card typically causes your credit score to drop by five points or less. However, that number could climb as high as 10 points or register as low as zero based on a variety of factors, including:

• Credit repayment history. A record of making on-time payments for credit cards and other loans can help to minimize the impact of hard inquiries.
• Credit utilization. Lenders prefer the ratio of how much credit you use versus what you have available, known as your credit utilization, to be 30% or less.
• Age of credit accounts. Generally speaking, hard pulls have less effect on your credit score if you have older credit accounts that you’ve kept in good standing.
  
• Recent hard inquiries. When it comes to your credit score, the fewer number of hard inquiries you have in a short period of time, the better.

Although a hard credit pull will remain on your credit report for two years, your credit score should readjust within 12 months or less, provided you stay current on your payments and don’t take on additional debt.   

How Applying for Multiple Credit Cards at Once Affects Your Credit Score

In many ways, having multiple credit cards and using them judiciously is a good thing. They can help to diversify your credit mix, provide additional payment options for certain situations, and offer rewards for each dollar you spend.

That doesn’t mean you should apply for numerous credit cards at the same time.

Each application generates a hard inquiry that will appear on your credit report for two years. That means any lender who reviews your credit report will see your numerous requests, and numerous requests can make lenders wonder why you want or need so much credit.

What’s more, each hard pull shaves a few points off your credit score. This creates a compounding decrease in your credit score, sometimes lowering it by double digits. And that makes it harder to qualify for the best interest rates or get approved for other loans.

Truth is, it’s best to wait at least three to six months between credit card applications. That way you can avoid multiple hard pulls on your credit report and get a few payments under your belt, both of which look good to lenders and help your credit score rebound. 

Can Applying for a Credit Card Improve Your Credit Score?

Applying for a credit card, in and of itself, won’t improve your credit score. It will actually lower your credit rating for several months. That said, being approved for a credit card — and, more importantly, using it wisely — can boost your credit score. In time.

Whether you’re a credit card first-timer or a veteran of paying with plastic, you can use your card to build (or rebuild) credit. The key is to create healthy habits early on and stick with them for the long haul. This includes:

• Setting reasonable spending limits
• Charging only what you can afford
• Making on-time payments each month
  
• Keeping credit utilization below 30%
• Limiting applications for new credit

Does Getting Denied for a Credit Card Hurt Your Credit?

While getting denied for a credit card doesn’t hurt your credit, the hard inquiry will knock a few points off your score. What you should be more concerned with is why you were denied.

By law, any lender who rejects your application for credit must provide an explanation within 60 days.

Some of the most common reasons you might be rejected for a credit card include:

• History of late payments. The fastest way to disqualify yourself for new credit is to make a habit of being late with or missing payments on existing loans or credit cards. 
• Low credit score. Each lender has its own criteria for approving or denying credit card applications, but a credit score below 660 will make it harder to qualify.
  
• Little (or no) credit history. Many credit card companies won’t approve your credit application if you haven’t proven that you can manage debt well over time. 
• Insufficient income. While income isn’t used to calculate your credit score, it affects your ability to repay what you charge, which no doubt factors into a lender’s decision.
  
• High debt. If you already have a large amount of debt, lenders will be less inclined to approve you for additional credit because you’re at a higher risk of missing payments. 

If your credit card application is denied for these or any other reason, be sure to review your credit score to check for and correct any errors.

Afterwards, set out to improve your credit score and enhance your overall financial situation by building credit without a credit card or managing existing credit card debt more responsibly.

The Takeaway

Although applying for credit has become second nature for many people, the ripple effects from even a single application extend beyond the day when your new card arrives.

Do yourself and your credit score a solid by using plastic strategically and resisting the temptation to open a new credit card every time you hear about a great promotion.

The long-term benefits will almost certainly exceed any short-term perk you might enjoy.