How Opening a Credit Card Helps and Hurts Your Credit Score

Alexander Borell Debt Defense

There are many reasons why you may want or need a new credit card. Whatever your reason may be, there are a few things you should know about how opening a new credit card can affect your credit score. Knowing how opening a new line of credit will impact your credit score might help you avoid significantly damaging your credit history.

How a New Credit Card Can Help

Opening a new type of credit account can have a very positive impact on your credit score. Having a healthy combination of loans and credit cards in your credit history can help improve your credit score. Additionally, opening a new credit card can increase your credit score by lowering your credit utilization ratio. Ideally, this ratio should be below 30%. For example, if you have $1,500 worth of debt, you should have access to at least $5,000 of credit. Opening a new credit card is an easy way to do this. Lastly, opening a new credit card can help you increase your credit score if you are able to make your monthly payments on time. Making on-time payments across multiple lines of credit is an easy way to boost your credit score.

How a New Credit Card Can Hurt

When opening a new credit card, there are two major factors to consider – both of which can significantly damage your credit score. The first of which is that a new credit card will decrease the average age of your credit history. This may not be a big deal if you have a long credit history; however, it can have a major impact on individuals with a fairly short credit history. Moreover, opening a new credit card adds an inquiry to your credit report. Whether you end up actually opening the account or not, having a credit company simply request your credit report can hurt your credit score. Typically, this not that big of a deal, but you want to be careful if you are planning on making a big purchase in the near future – especially a home. If a lender sees that you are opening lines of credit frequently, they are likely to view you as a higher risk when it comes to qualifying for a mortgage. This means that a potential mortgage loan might not be approved, or you could get approved only to find yourself stuck with a higher interest rate.  

While a credit card, or other line of credit can help your credit score and be a positive thing for you financially, one thing to remember is that the money on your credit card is not yours. It is the credit card company’s and they are letting you borrow it for a fee (interest). Credit used today is debt you owe tomorrow. So, my advice with credit cards is to use them responsibly; and, if you are ever in the situation where you need help getting out of debt, you should not hesitate to contact an experienced debt defense attorney to outline your options and put you on the right track

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