If you're debating whether to add a new credit card to your wallet immediately or wait a little while, you might want to give it some thought. After all, applying for a credit card can affect your credit score, and there may be other factors to consider, such as if you're applying for a mortgage or trying to get a sign-up bonus for a credit card. Find out more about the benefits and drawbacks of applying for a new card based on your credit score, the application limitations for some issuers and banks, the reasons why waiting might be a good idea, and whether you should sign up right away.
Main Points
- Your credit score may temporarily drop due to applying for a credit card.
- Your credit score can increase by applying for more credit, provided that you keep your balances low.
- You may be limited in how often you can apply for credit, how many cards you can have overall, and how frequently you can be eligible for a new-cardmember bonus by some issuers.
- In certain circumstances, such as when buying a home, restoring credit, if you've recently been turned down for other credit, or if you're unemployed, proceed with a new credit card application with caution.
How Credit Scores Are Affected by Credit Card Applications
Your credit score can currently be lowered if you apply for new credit cards too frequently over a short period. Your score can be affected by even one credit card application. However, over time, adding a few credit cards can raise your credit score. Pros and cons are listed below.Impacts of Bad Credit
Because anything deemed "new credit" is worth 10% of your credit score, applying for numerous credit cards in a short period can lower your credit score. Your credit history's average age will decrease after you receive the card. Your credit history's length, which makes up 15% of your score, is based in part on it.When you get a new card after having one for ten years, your new average will be five years rather than ten.Effects of good credit
Your credit utilization ratio will have the biggest impact in the long run. Your overall credit limit increases with each card you successfully open. Your credit utilization ratio increases if you use little credit each month and have a lot of credit available to you. In relation to the credit you have access to, this is how much debt you have. Of all the factors we've covered so far, the amount you owe accounts for 30% of your credit score. Your credit score has not yet been impacted when receiving a preapproved credit card offer in the mail. However, the hard inquiry might affect your score if you accept the offer and apply for the card.Limitations imposed by credit card issuers
You probably don't want to risk damaging your credit in order to apply for a card that you might not get. Therefore, even if you have excellent credit, it's important to be aware that some issuers have a variety of restrictions on applying for and receiving cards. These motives might consist of:- Combating card churning occurs when applicants apply for cards, earn cash or points, and then cancel the card to earn more cash or points.
- Limiting the total amount of credit you can borrow or the number of credit cards you are authorised to use will reduce the bank's exposure in the event that you suddenly find yourself unable to pay your bills.
- Additionally, temporary restrictions may be affected by the overall economy. Banks tightened credit card underwriting guidelines during the previous recession for several years, changing credit score cutoffs and lowering credit limits.
- Discussions on various issuer "rules" surrounding card applications can be found on websites and online message boards. These regulations are frequently compiled using crowdsourcing techniques, so it's possible that you won't be able to find many of these regulations, policies, or guidelines on the websites of credit issuers. There is a chance that these guidelines or policies will alter down the road, and exceptions might be made. Although not an exhaustive list, here are a few examples.
Limits on Card Applications
These regulations, which ask you to restrict card applications to a specific period, may apply to all applications or just those made to the bank or issuer specifically. There are rumored restrictions, such as:- With a few exceptions, most Chase cards are unlikely to be approved if you've opened more than five cards in the previous 24 months.
- Citi 8/65 limit: You can only apply for two cards in a period of 60 to 65 days, and you must wait eight days between applications.
- The "2/90" rule states that you can only be approved for two American Express cards within a 90-day period.
- At the time of publication, the issuers had neither confirmed nor denied these regulations.
- The application policies of some issuers vary. For instance, Wells Fargo states that you might not be eligible for another card if you've had one from them in the last six months. A Discover Card or a Capital One card may only be approved for you once every twelve months or once every six months, respectively.
Amount of Cards
Consider timing if you want to apply for a new card; you might need to close another one first—or not apply at all—as some card issuers have limits on the number of cards you can carry from the issuer. Additionally, you wouldn't want to submit multiple applications to the same issuer at once. For instance, American Express has acknowledged a four-card limit for personal or business credit cards. It's said that a person can only have two Capital One cards in their possession. With other issuers, conditions may change the rules. For instance, depending on a number of variables, Wells Fargo may place a restriction on a customer's open Wells Fargo credit card accounts. Remember that any cards you share with your spouse could lower your credit score, increase the number of open accounts on your account, and reduce your card limits.Bonus restrictions for new cardholders
Pay close attention to issuer restrictions on how frequently you can apply for a credit card if you want to qualify for a welcome bonus of cash or points or a low introductory interest rate. For instance, Citi does not grant cash or point bonuses if you have received a new card member bonus for a particular card within the previous 24 to 48 months or if you have closed an account with a particular card during that time. For instance, with the Citi Premier Card, new cardmember bonuses are only available to applicants if they haven't already received one for Citi Rewards+, Citi ThankYou Preferred, Citi ThankYou Premier/Citi Premier, or Citi Prestige (or if they haven't closed any of these accounts) in the previous 24 months. You might not be eligible for another introductory offer or bonus if you've already received an introductory rate or bonus for one of the Wells Fargo consumer credit cards within the previous 15 months.When to Apply for Credit Cards Extra Carefully
When you apply for a credit card, the company issuing it is informed that you want more credit, which could result in more debt. Consequently, refrain from asking just before: Purchasing a home: Avoid applying for new credit cards between the time you apply for a mortgage and the time your loan is closed because doing so could harm your credit rating and result in higher mortgage interest rates. Credit repair: Before requesting new credit lines, work on maintaining a history of timely payments and paying off any outstanding debt. Transferring a card balance: Applying for a balance transfer card can assist you in consolidating debt and paying a low-to-zero promotional interest rate; however, keep in mind that there may also be a balance transfer fee and that the promotional rate will only be available for a certain period. Recent denials: If you have recently been denied a credit card, the issuer must explain why. Before requesting a new credit card, find out if your credit report needs to be fixed or improved and take the necessary action. You are without a job: Income is a common factor that issuers take into account when deciding whether to approve your card application. Waiting until you've secured your next situation may be best if you're in between jobs. For the credit card issuer to review your credit, if you've frozen your credit report, be sure to unfreeze it before applying for a credit card immediately.Most Commonly Asked Questions (FAQs)
How should I submit my credit card application?
The Consumer Finance Protection Bureau's research indicates that your credit score, the type of card you apply for, and the method of application all have a significant impact on the approval rates. Among the most effective tactics when it comes to general-use credit cards are in-person applications, responding to mail or a pre-screened offer, and both.How long does it take to evaluate a credit card application?
Your request for a new credit card could be reviewed right away and approved in a matter of minutes, or it could take longer if an analyst needs to take a closer look. You should receive a response via mail in seven to ten days, though each issuer will differ.How often should I have my credit checked?
Hard inquiries or credit checks typically lower your credit score by five points or less. While inquiries remain on your account for two years, they only impact your FICO score for one year. After a few months, you might even notice an increase in your score. Before applying for another credit, you might wait for your score to improve.How often must I use my credit card in order to keep it active?
Utilize your credit card a few times each month to create a solid history of purchases and debt repayment. However, be aware that your card issuer has the right to cancel your account at any time and without prior notice.How should I react if I'm turned down for a credit card?
If at all possible, you can contact the issuer to request a reconsideration; the phone number may be printed on your denial letter. If you're turned down because of poor credit, you might need to fix your credit or remove inaccuracies from your credit report.