How will a new credit card affect my score?

Anonymous · ‎11-03-2014

Hi,

I am about to apply for a new credit card, but I would like to know how much it would knock off my score. Currently, I have excellent scores (757, 770, and 774), but I will likely be refinancing my mortgage within the next year. I would hate to have my score going below 740 (or is it 700?) as I think that is what mortgage lenders consider excellent credit.

Any advice on how much a new card can knock off the score and how long that effect may last? Thank you.

George

takeshi74 · ‎11-03-2014

Impossible to say. It's not just a matter of "new card = X points lost". It's a matter of your credit and how all the changes to the various factors of having a new account

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

impact your credit. Adding a card could cause a drop for one person and an increase for the next and a negligible change for yet another.

Besides, you'd need to look at your scores using models that are used by mortgage lenders if you're concerned about a future mortgage and you cannot purchase those scores.

1GaDawg85 · ‎11-03-2014

@Anonymous wrote:
Hi,
I am about to apply for a new credit card, but I would like to know how much it would knock off my score. Currently, I have excellent scores (757, 770, and 774), but I will likely be refinancing my mortgage within the next year. I would hate to have my score going below 740 (or is it 700?) as I think that is what mortgage lenders consider excellent credit.
Any advice on how much a new card can knock off the score and how long that effect may last? Thank you.
George

Need more info like AAoA, util, last card opened. But it probably won't affect it much. YMMV

FICO 5 ,4, 2 - 10/2023 FICO 8 - 10/2023 FICO 9 - 10/2023 FICO 10 - 10/2023

Anonymous · ‎11-03-2014

In the short-term it will effect your score for some of the following reasons:

1. New hard inquiry - 95% of credit card applications require a hard inquiry which will temporarily lower your score by a few points. This will go back up slowly and some hard inquiries are fine unless you are looking at a mortgage in the next year or two or an auto loan in the next 6-12 months.

2. Lower Average Age of Accounts (AAoA) - Each new credit account lowers the average age of all your accounts. Lower AAoA means a lower score. The fewer accounts you have reporting (including closed ones that still report) the lower the reduction.

In the long-term new trade lines (TLs) can strengthen your credit for the following reasons:

1. Responsible use of credit

2. Thicker credit file with a positive credit history

3. Lower utilization of your available credit (e.g. I charge 3-4k a month on my cards...if I only have 15-30k available credit, I'd frequently go over the 10% cap on the optimal credit utilization).

Note: The above are just examples of how your score could be impacted.

For most people, a few new credit cards a year will not drastically reduce credit scores. Most credit cards will have a minor negative impact on your score in the short-term and help you have a higher score in the long-term if you use them responsibly. For some people (e.g. those with 30%+ utilization) a new credit card with a big credit line could actually improve scores even in the short-term. Don't worry too much about short-term reductions in credit scores due to new TLs unless you plan to take a big loan (mainly mortgages) in the next 1-2 years.

Jlu · ‎11-03-2014

As most are saying here.. need more info. AAoA right now would be a good place to start. If you are right on the cusp of a whole year like 3.1yrs or 5.2yrs you may drop it below that threshold resulting in a larger decrease in your score. I just added an account and between the inq & new account I went from 765 to 762.. other times I've added accounts that dropped my score up to 20 points.

Dw4250 · ‎11-03-2014

With all the caveats listed above, the "typical" person can expect to see a 5-7 point drop per new account (INQ and TL). This should recover in 6 - 12 months. Those with higher starting scores (ie 780+) can expect to see a bigger drop than say someone with a 700 score. But as everyone has said, there are many variables to consider...

CreditDunce · ‎11-03-2014

An Excellent score for a mortgage is a middle score of 760+. As another poster said, mortgages use FICO 04/98 scores. The only FICO 04 score you can purchase is your EQ-04 score from Equifax (make sure it says FICO in the score your purchase). You can get the same score for free from DCU, although it will cost you a HP to join.

While your score will probably not be hurt very much, I wouldn't app for a new credit card within 1 year of applying for a mortgage. That is unless you have fewer than 3 CC's in which case it might be a good idea to app.

Anonymous · ‎11-05-2014

I'm sure everyone here has heard of "The higher you are, the harder you fall"

My personal experience over my app-o-rama this year has been that my scores did not fall, in fact, they rose with new accounts and a small amount of inquiries peppered throughout.

08/01/14: EX/674

EQ/637

TU/673

7 accounts and $14,500 in addtl defined credit limits (One approval was an AMEX PRG)

11/01/14: EX/678

EQ/646

TU/681

-----------------------

Now, before you say it was only because I lowered my Utilization, that's not necessarily true. I don't bother to play the statement chasing game, so I let the statement cut and then pay.

I'd get whatever apping you want over with now before pursuing a re-finance/any type of mortgage deal in the time span you gave.