Does Adding a Credit Card Improve Your Credit Score?

Opening a new credit card account can often be a good way to improve your credit score. Yet sometimes adding a new credit card to the mix might set your credit score back instead—at least for a while.

This guide will help you discover how opening a new credit card can impact your credit score. You’ll also learn strategies that can help you choose the right credit card for your situation, along with steps you can take if you’re unable to qualify for an additional credit card right now.

Table of contents

• How opening a new credit card can affect your credit score
• When a new credit card might improve your credit score
• When a new credit card might damage your credit score
• What type of credit card can or should I get?
• How to use multiple credit cards to improve your credit score
• Should you close your old credit card when you get a new one?
• How to improve your credit score if you can’t qualify for an additional credit card

How does opening a new credit card affect your credit score?

There’s no universal answer to the question, “How does opening a new credit card impact your credit score?” Credit scores have many moving parts. In other words, there are many factors that can impact your credit score. And the way a new credit card affects your credit score could be quite different from the credit score impact someone else experiences.

Adding a new credit card account to your credit report could help or hurt you in the credit score department—and perhaps even do a little of both. Below are examples of different scenarios where the overall impact of a new credit card might be positive or negative.

A new credit card might improve your credit score

Opening another credit card account does have the potential to be a positive move where your credit score is concerned.

A new credit card could:

• Lower your credit utilization rate. Credit utilization measures how much (aka the percentage) of your credit card limits you are using. When you open another credit card, the new account’s credit limit could drive your utilization rate downward, and that movement can be positive from a credit score perspective. Note: It’s important to pay off your credit card balances each month, especially on any new accounts. Otherwise, you could create debt and credit problems for yourself that are challenging to overcome in the future.
• Diversify your credit mix. The types of accounts on your credit report make up 10% of your FICO® Score. Having both installment accounts (like personal loans) and revolving accounts (like credit cards) can help you in this credit score category. So, if you add a credit card to a credit report that previously did not have this type of account, you might see a credit score bump.
• Help you build a positive payment history. Payment history is the most important credit score category making up 35% of your FICO Score. When you open a new credit card and consistently pay it on time each month, it gives you the opportunity to establish a history of on-time payments.

A new credit card might damage your credit score

All new credit obligations—credit cards included—have the ability to damage your credit score. Whether a credit card influences your credit score for the good or bad depends on numerous factors.

A new credit card could:

• Lower your average age of credit. Your length of credit history influences 15% of your FICO Score. The older your credit history and your average age of accounts, the better from a credit score standpoint. Of course, adding a brand new account of any type to your credit report will cause your average age of credit accounts (and potentially your credit score) to go down. Note: If you become an authorized user on a friend’s or family member’s credit card, you may be able to add a new credit card to your credit report without facing this problem, depending on the age of the account in question.
• Add a new hard inquiry to your credit report. Applying for a credit card or other type of financing typically involves a credit check. When a credit bureau allows a lender to access your credit report, a record of the access appears on your credit report. This is called a credit inquiry. Hard credit inquiries, such as those that occur when you apply for financing, may lower your credit score (though usually not by much).

What type of credit card can or should I get?

Before you can figure out what type of credit card may be best for you, you need to understand the condition of your credit. Your credit score isn’t the only factor that a credit card company will consider when you apply for a new account, but it’s an important detail. Credit scores help lenders assess the risk of loaning someone money.

Once you download your credit reports and credit scores, you’ll have a better idea of your overall credit health and credit score range. If your credit score is considered to be “good” or “excellent,” you’ll probably have many different credit card options to choose from. With “fair” or “bad” credit scores, however, your choices may be more limited.

You should avoid applying for credit cards that you’re unlikely to qualify for based on your credit. Otherwise, you may become frustrated if and when lenders deny your applications.

On a positive note, it’s still possible to open credit cards even with damaged credit or no established credit history. In these situations, a secured credit card may be worth considering.

How to use multiple credit cards to improve your credit score

It’s possible to earn a good credit score with one credit card or with many. The most important rule to follow in either situation is to always make your monthly payments on time. Late payments, even occasional ones, can cause severe credit score damage.

Multiple credit cards can also make it easier to maintain a lower credit utilization rate thanks to the additional credit limits those accounts provide. And anything you can do to keep your utilization rate down could work in your favor where credit scores are concerned.

Should you close your old credit card if you get a new one?

In most cases, you should avoid closing old credit card accounts. Closing a credit card could increase your overall credit utilization rate. As a result, the account closure could have a negative impact on your credit score.

If you’ve already made the mistake of closing an old credit card, it might be possible to reopen the account after the fact. This helpful guide can walk you through the steps of asking a card issuer to reopen a closed credit card, and it provides tips on how to improve your chances of success.

How to improve your credit score if you can’t qualify for an additional credit card

If you can’t qualify for an additional credit card right now, don’t be discouraged. There are still alternative actions that might help you.

1. Review your credit.

Checking your credit reports is easy and free. You can visit AnnualCreditReport.com to download your reports from all three credit bureaus (Equifax, TransUnion, and Experian) once every 12 months.^[1] These free reports are a right afforded to you under the Fair Credit Reporting Act.

It is worth pointing out that you can’t get a free credit score from this website. However, there are numerous websites that offer free credit scores in exchange for you agreeing to receive advertisements for financial products and services.

Once you have your credit reports and scores from the three credit bureaus, review them for errors. A recent Consumer Reports study found that 34% of consumers have an error on at least one credit report.^[2] If you find that one or more of your credit reports does contain mistakes, you can dispute those inaccuracies with the associated credit bureau(s).

2. Try another credit-building approach.

Opening a credit card isn’t the only way to add positive credit history to a credit report. Even with a poor credit score or a lack of credit history, you may be able to use one of the following methods to add a positive trade line to your credit report.

• A credit builder loan is a special type of installment loan that could help you build credit over time. If you’re eligible to open this type of account, such as the credit builder account from Self, remember, on-time payments are essential if you hope to build some positive payment history.
• An authorized user account might also benefit you if you’re having trouble qualifying for a credit card on your own. As an authorized user, the card issuer may report the account history to the credit bureaus for both you and the primary card holder. If your friend or family member manages the account well (i.e. timely payments and low credit utilization), there’s a chance it could improve your credit score as well and when it appears on your credit report.

Adding a new credit card could be an effective way to improve your credit score. Just remember, it’s the way you manage your new account that matters most.

Credit cards can be a powerful credit-building tool. At the same time, they can be a source of temptation for some. It’s critical to avoid overspending, late payments, and other dangerous behavior where credit cards are concerned.

Sources

1. AnnualCreditReport.com. https://advocacy.consumerreports.org/wp-content/uploads/2021/06/A-Broken-System-How-the-Credit-Reporting-System-Fails-Consumers-and-What-to-Do-About-It.pdf
2. Consumer Reports. “A Broken System: How The Credit Reporting System Fails Consumers And What To Do About It” https://advocacy.consumerreports.org/wp-content/uploads/2021/06/A-Broken-System-How-the-Credit-Reporting-System-Fails-Consumers-and-What-to-Do-About-It.pdf

About the author

Michelle L. Black is a leading credit expert with over 17 years of experience in the credit industry. She’s an expert on credit reporting, credit scoring, identity theft, budgeting and debt eradication. See her on LinkedIn and Twitter.

About the reviewer

Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.

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