How does applying for a credit card hurt my credit score?

Credit card companies make an inquiry to your credit report every time you apply for a new credit card. These are more commonly known as hard pulls. Each time you have a credit inquiry or hard pull, 5 points are taken away from your credit score.

The credit reporting agencies justify taking away points from your credit score because it is harder to maintain multiple lines of credit as compared to just one or two. The reporting agencies believe it also demonstrates your tendency towards getting excessive credit and spending irresponsibly. The spending trend may become difficult for you to break and as a result, default occurs.

These types of inquiries remain on your credit report for one to two years, but the drop in score will actually be raised in a couple of months, if you do not abuse your newly acquired credit. Your score will rise fairly quickly if your credit application gets approved because the additional line of credit will give you a boost. You will get a boost because your ‘debt is to available credit’ ratio will also improve.

Be Aware Of The Credit Application Spiral

Those whose scores are hit the worst are the ones whose credit application gets rejected. A rejected application automatically causes their score to go down. Then, once their application has been rejected the first time, they will usually apply again thereby reducing their score even further and raising the odds that they will get rejected again. This can turn into a vicious cycle and if an application and denial is sought enough times their credit score can take an even bigger hit.

So caution is advised next time you are tempted to apply for that silly store credit card that will save you a measly $10 off on a new shirt. Be sure to think twice!