People tend to have two completely opposite attitudes toward credit cards. Some people are obsessed with them and apply for more than a dozen cards a year; others are extremely cautious and do not dare apply for even one card a year. So are credit cards gift-bearing angels, or evil messengers from Satan? Today, let’s take a look at how getting a new credit card affects your credit report and credit score.

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Introduction to Credit History and Credit Scores

In the U.S., almost everyone has to deal with credit history. From taking out a mortgage to buy a home to paying monthly utility bills, all of your financial behavior is recorded in your credit report. Based on your credit report, banks, the various credit bureaus, and auto dealers may use different models to generate your credit scores and decide whether to approve your credit card application, loan, and so on. It is fair to say that having a good credit report is extremely important in the U.S.

In the article “Overview of Credit History and Credit Scores,” I introduced some basic knowledge about credit history and credit scores, including:

However, these concepts are still fairly abstract, and it can be hard to connect them to your own real-life situation. For example, how exactly does applying for a new credit card affect your credit history? What happens when you close a credit card? What is the difference between applying for several cards at once versus spacing them out over a few months? Today, I’ll start with the simplest case and explain how opening a new credit card affects your credit report and credit score.

A New Credit Card and Your Credit Report/Score

For applicants, applying for a credit card generally involves the following steps. For the bank, every step is related to your credit history.

  • Fill out the application online / by phone / at a bank branch (the bank pulls your credit report)
  • Wait for the bank’s decision after submitting the application (the bank reviews your credit report)
  • The bank approves your credit card and gives you a certain credit limit (which is related to your credit report)
  • You receive the card and start using it (the bank reports your new card to the credit bureaus)

Here, I will directly summarize the ultimate impact of this new card on your credit score after the four steps above. If you are not interested in diving into the details, these key points are enough:

  • Overall, your credit score will dip slightly (within 1 month), then rise / stay flat / fall (after 1-2 billing cycles), and gradually rise over the long term
  • A hard pull (HP) lowers your credit score with the credit bureau that was pulled; the effect becomes very small over time and disappears completely after two years
  • The process of reviewing your credit report does not affect your credit score
  • The approval result of your application does not affect your credit score
  • A new card usually takes 1-2 billing cycles to appear on your credit report
  • Once the new card appears on your report, your average age of accounts decreases, which can lower your credit score, but the impact becomes very small once your credit history gets longer
  • Once the new card appears on your report, your total credit limit increases, which can improve your credit score, but the marginal impact becomes small once your total credit limit is already high
  • In the long run, because of the new card, you build more on-time payment history, which will improve your credit score

Credit Report Pull at the Time of Application (Hard Pull)

After most applicants submit a credit card application, the bank will pull your credit report from one or more credit bureaus to evaluate your credit profile and score, and then decide whether to approve your application. So generally speaking, after you submit an application, a record of the bank’s inquiry (Hard Pull, or HP) will appear on the credit report of the bureau that was pulled.

A hard pull will, of course, lower your credit score somewhat. For people who are not planning to borrow in the near future, or for students who only plan to stay in the U.S. for a short time, having more HPs usually does not matter much. There are two reasons:

  • HP accounts for less than 10% of your credit score
  • The effect of an HP gradually decreases over time and disappears completely after two years

So you really do not need to worry too much about HPs on your credit report. First, HPs make up only 10% of your credit score; the biggest factors are the amount you owe and your record of paying on time. As long as you do not carry too much balance when your statement closes each month and you pay every statement on time, your credit score will naturally keep rising. Also, the effect of an HP on your credit score is only short term; as time passes, its impact gets smaller and smaller. Two years after the HP, the record will be removed from your credit report entirely, so at that point it has no effect at all.

However, if you need a loan soon, the bank may very well ask about the source of every HP. That could cause your loan to be denied or your interest rate to increase. So if you plan to apply for a mortgage, it is best to apply for fewer credit cards during the two years before the loan and reduce the number of HPs on your credit report.

Another key point is that the score drop only affects the credit bureau where the HP appears. In other words, if the HP appears on Experian (EX), then it will not affect your TransUnion (TU) credit score at all. So the ideal situation is to have your HPs spread evenly across the three credit bureaus, so that your score at each bureau does not get too low. That is why some people specifically freeze one credit bureau: on the one hand, it reduces HPs at that bureau; on the other hand, the bank cannot pull the bureau with too many HPs and can only pull another bureau with fewer HPs, making approval more likely. Some people even apply for several cards in one day. It may look crazy, but if the HPs are distributed across the three bureaus, the banks cannot see one another’s HP records, so it may not hurt your applications at all. For details, see: Credit Card Application Strategy: AOR

One more point: in the very short term (the same day), an HP may not affect your credit score at all.

So in short:

  • A hard pull (HP) lowers your credit score with the credit bureau that was pulled; the effect becomes very small over time and disappears completely after two years

The Effect of Review and the Approval Result

The review process may simply be a computer using the bank’s own model together with your pulled credit report to estimate a credit score for you; as long as your score is above the bank’s preset threshold, you are approved directly. Of course, it could also go into manual review, where an analyst examines each part of your credit report and then makes a decision. During this process, the bank already has your credit report in hand. It does not add anything to your report, and it does not write a denial onto your credit report either. So in short:

  • The review process and the final approval result do not affect your credit score

The Effect After the New Card Is Reported

In fact, from the time you apply to the time you are approved and receive the card, your new credit card usually has not yet been reported to the credit bureaus. Before the first statement closing on your new card, this application has only left an HP on your credit history, so only that HP has a small effect on the credit bureau that was pulled. After the new card is reported—often after the first statement closing or the second statement closing—it will actually appear on your credit report and begin affecting your credit score. We can analyze the effects of this new account record from both a short-term and a long-term perspective. So in short:

  • A new card usually takes 1-2 billing cycles to appear on your credit report, and before that it does not affect your score

Short-Term Effects of a New Card

A newly reported credit card on your credit report usually adds two main pieces of information: credit history and credit limit. Since it is a new card, its credit history is of course zero, while its credit limit is the limit you were approved for. You already have an average credit history length of your own (the combined history of all your cards divided by the number of cards). Adding a new card with zero history is effectively just increasing the denominator, so your average credit history goes down, and naturally your credit score goes down as well. On the other hand, looking at your total available credit, your overall credit limit definitely increases (which can be viewed as the bank trusting you more and being willing to lend you more money), so your credit score goes up.

So in the short term, does your credit score go up or down? Let’s look at two extreme examples:

  • Example 1: Suppose you have 20 cards, an average credit history of 10 years, and a total credit limit of only $10,000. You are approved for a new credit card with a $10,000 limit.
  • Example 2: Suppose you have 1 card, an average credit history of 1 year, and a total credit limit of $100,000. You are approved for a new credit card with a $10,000 limit.

The same $10,000 in new credit makes up a large percentage in Example 1, while the impact of one additional card on average credit history is small. So the person in Example 1 could very well see their credit score increase. By contrast, in Example 2, after the new card appears, the average credit history suddenly drops to 0.5 years, while the boost from the added credit limit is relatively minor, so that person’s score would likely decrease. Therefore, it is hard to say whether a newly reported credit card will have a positive or negative effect on your credit. For most people, a new account will still cause their score to drop in the short term. But if you already have a long enough credit history, the impact is basically negligible.

So, in two sentences:

  • After a new card appears on your credit report, your average age of accounts decreases, which lowers your credit score, but the effect becomes very small once your credit history is long enough.
  • After a new card appears on your credit report, your total available credit increases, which raises your credit score, but once your total credit limit is high enough, the effect becomes very small.

The long-term impact of a new card

In the long run, a new card has a positive effect on your credit history and credit score. Of course, the premise is that you make payments on time and use your credit card responsibly. Every new card earns its place on your credit report, adding a monthly record of balances owed and on-time payments, and this accounts for 65% of your credit score! So managing your cards well is the best way to improve your credit score. Of course, if you already have more than 20 cards, then one more card’s payment history naturally matters much less. So, in one sentence:

  • In the long run, because the new card adds more on-time payment history, it will raise your credit score.

Summary

This article took a detailed look at how your credit report and credit score change after you apply for a new credit card. In short, your credit score will dip slightly (within 1 month), then rise/stay flat/fall (after 1-2 billing cycles), and gradually rise over the long term. This analysis is based entirely on how credit reports and credit scores work. If you want a deeper understanding of credit scores and credit history, see:

In fact, a new credit card affects more than just your credit report and credit history. Its biggest impact is often on ourselves. I’ll talk about that in the next article. Stay tuned for the next post:

  • The Bloody Case Triggered by a New Credit Card