Are Credit Cards Bad for Your Credit Score?
Posted on July 6th, 2011
Credit card Q&A: “Are credit cards bad for your credit score?”
In short, no, opening a credit card won’t hurt your credit score, at least not in the long run.
Sure, you may see your credit score get dinged a few points when you apply for a credit card, but this is standard practice when you apply for any type of loan.
Be it a credit card, auto loan, mortgage, or any other type of loan. Essentially, anytime you make a request for new credit, you heighten your credit risk. Don’t confuse this with checking your own credit score, as that doesn’t involve new credit and will not hurt your credit score.
The general thinking is that those in need of credit, whether for good reasons or bad, are less financially healthy than those who don’t need new credit.
It’s a harsh rule, but obviously it’d be pretty darn complicated to make the whole process subjective. And like anything in the credit realm, it largely depends on your unique situation.
Everyone has a different credit profile, so the opening of a credit card could be good or bad.
Let’s look at an example:
Imagine if someone had very little credit history and opened a credit card.
While it may have been difficult to get that initial approval, thanks to that lack of history, the new credit card could lead to a healthier, good credit score in the future.
You see, “length of credit history” and “types of credit used” are important factors in determining your Fico score.
So without a decent mix of credit and a few years under your belt, your credit score will actually suffer. If you open a credit card account and make timely payments, you’ll add to that history and credit mix.
Not only that, but if you keep the balance low, you’ll improve your credit utilization (more available credit) and your credit score.
Conversely, if you’ve already got 10 credit cards open and plan on opening number 11, you may want to think twice. Having too many credit card accounts can be detrimental to your credit score (and your bank account).
In summary, don’t be afraid to open a credit card if you want/need one. While there may be an initial hit to your credit score, healthy credit habits practiced over time will ensure your credit score keeps moving higher and higher.
After all, without credit history you won’t have a credit score, so it’s a bit of a catch-22.
Just be sure to always make timely payments, keep balances low, and apply for credit sparingly.
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