You may have noticed various credit card companies offering tempting credit card deals now and again. Many of these come with enticing bonuses when you sign up. Therefore, applying right there and then seems like a great idea.
While applying for new credit cards and enjoying the “promised” rewards of signing up is appealing, you need to consider certain rules banks have in place.
So, how often should you apply for credit cards?
Applying for credit cards on a regular basis could have a serious impact on your credit score.
Certain rules and regulations mean you are limited in how often you can apply for a credit card. But, that doesn’t mean you can’t apply for them now and again.
In today’s post, we are going to discuss how frequently you should apply for credit cards. We will also look at the best times to apply and how it can affect your credit score.
How Applying For Credit Cards Can Affect Your Credit Score
Applying for a credit card can have an impact on your credit score in various ways. Do it too often, which can significantly affect your score.
Below are some possible outcomes regarding your credit score and credit report when applying for a credit card.
A New Credit Check
When you apply for a credit card, the card issuer will complete a hard credit check on you. When a hard credit check takes place, it affects your credit score.
Your credit score drops by up to five points every time a hard credit check is made. These hard inquiries remain on your credit report for as long as two years. However, they typically only affect your score for one year.
If you apply for too many credit cards in a short amount of time, the impact on your credit score will be greater, meaning you could lose a significant amount of points.
Credit Utilization
Your credit limit increases when you apply and start using a new credit card. As long as everything else remains the same, your total credit utilization ratio will decrease, while your credit score increases.
Credit utilization compares the level of debt you have to the quantity of credit you have, which is presented as a percentage. For instance, if your credit limit is $10,000, but you owe $5,000, your total credit utilization will be 50%.
If you open a new credit card that comes with a limit of $10,000, your total credit would be $20,000, dropping your utilization to just 25%. You should be okay if you keep your credit utilization below 30%. Experts warn not to go above this.
Mix Of Credit
To ensure you can manage different payment types, lenders want borrowers to have a mixture of credit. When opening a new credit card using this credit factor, your current credit mix is a significant determining factor.
The Average Age Of Account
When opening a new credit card account, the average age of your accounts will be reduced. How large this impact is, though, depends on other accounts you have opened, as well as the age of these.
Nevertheless, the negative impact will be limited if you have existing, stable credit.
You may think that your personal payment history may be affected when applying for a new credit card, but this is not the case.
Nonetheless, if you do not manage your account properly and responsibly, such as not making payments on time, your payment history could then get affected.
It is recommended that an automatic payment is set up for the minimum amount due. This ensures you will never miss a payment and your payment history and credit score will not be affected.
How Often Should You Apply For Credit Cards?
The application rules set out by the card issuer tend to determine how often you can apply for a new credit card.
Generally speaking, applying for a new credit card as frequently as you like is possible. However, you must meet the minimum spending requirements to do so.
Moreover, your credit score must also maintain a deemed acceptable level, and the bank must be happy to open an account for you.
Although you can apply when you want, it is recommended that you wait for at least six months between credit card applications.
For those with an established, long history of credit, applying for credit cards more often is considered acceptable. This is because many new accounts and hard checks should not have as much of an effect on the credit score.
However, if you have a low credit score and are trying to rebuild your credit, it is best to limit the number of credit card applications you make. Typically, this should be once a year.
That way, you can keep the impact on your credit report and credit score to a minimum.
Reasons To Wait Before Applying For New Credit Cards
There are multiple reasons why it is better to wait when applying for a credit card than do it frequently.
For instance, you can complicate your mortgage application if you are trying to finance or buy a home. This can result in poorer terms, a higher interest rate, and even a mortgage being declined.
It’s not worth spending extra on your mortgage for the next 30 years, just for a welcome bonus with a credit card.
Welcome bonuses often fluctuate during the year. This is why you should research credit card blogs and forums to see when the highest offers were. If the current bonus is lower, wait.
You can also maximize your benefits by waiting until the beginning of the new year to apply for a new credit card.
One final reason is that it can affect a loan application. A lender may see you as financially unstable if you apply for a credit card whilst planning to apply for a loan. Therefore, hold off and apply for a credit card after issuing the loan.
In Summary
As you can see, there are various factors to consider when applying for new credit cards. In general, try only to apply once a year, so your credit score and report are not greatly impacted.
We hope this article answered the question to How Often Should You Apply For Credit Cards!
As a current Mortgage Underwriter with 15 years of experience, I have seen my fair share of money-related issues. Whether that be high levels of debt, not enough credit, or simply a lack of funds - I’ve had clients who fit into these categories.
Here I will share tips, tricks, and experiences on how you can get yourself back in control of your finances.
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