Does Getting a Credit Card Hurt Your Score?

In most cases, when you hear the term "credit score," it refers to your FICO score. Credit bureaus calculate this score using a formula established by the Fair Isaac Corporation (FICO). Your credit score reflects the number of accounts you have, the balances on those accounts, the length of time the accounts have been open and your payment history. Credit scores can range from 300 to 800. The higher your score is, the more likely you are to get new credit and favorable interest rates.

New Credit Cards

Opening new credit card accounts does affect your credit score. According to the Consumer Federation of America, applications for new credit comprise roughly 10 percent of your overall score. Applying for and opening several new accounts in a short time can cause your score to go down. However, the credit bureaus do distinguish between opening several new credit cards and looking for a good rate on a loan. For example, if you are shopping for a car, and there are several inquiries into your credit within a 30-day period, this will not affect your score as much as opening several revolving lines of credit within the same time period.

Managing Credit

In general, opening and responsibly managing a credit card account can improve your credit score. Managing credit responsibly over time goes a long way toward making you a low risk in the eyes of lenders. In fact, some lenders view prospective borrowers with no credit cards as a higher risk, because they have no history of responsible credit management. That said, opening credit cards just to improve your credit mix will not immediately improve your score.

Credit Balance

Because your available credit and payment history influence your credit score, opening a new card account and running up charges is likely to make your score go down, especially if you do not pay the balance in full and on time. Fair Isaac Corporation recommends that you do not carry a balance totaling more than 10 percent of the credit limit on any of your cards. If you do carry a balance on your card, make your payments on time every month; your score will improve as the account ages and you establish a reliable payment history.

Improving Low Scores

If your credit history is less than stellar, getting a new credit card can help you improve your credit score over time. However, do not apply for a new card until all of your previous debts are either paid off or manageable. Using a new card responsibly --- meaning that you always pay the bill on time, and do not routinely max the card out --- will improve your score in the long term. Your payment history accounts for 35 percent of your credit score, so it is important to make your payments on time every month.