Does a Opening a New Credit Card Lower Your Credit Score?

There are tons of articles on the internet about how opening a new credit card will affect your credit score. (For a few, see TheBalance, nerdwallet, and lots of stuff on credit karma)  They are great resources, and in general, will all tell you about the same thing: As soon as you apply for a new card, it will lower your score in the near term, but once you are approved, your score will bounce back.

I’m here to provide you an actual example, showing you how applying for a new card affected my Transunion score, with screenshots to prove it!  Two months after opening a new credit card account, my credit score had increased 21 points, from 756 to 777.  

Note that the score is specific to my particular details, (how many cards I have, my utilization rate (UR), my total credit limit etc.) so your mileage may vary.   I provide some of these details below, but the screenshots really tell you all you need to know. As it turns out, the credit utilization rate is a key part of this story, so below the credit score screenshot, I’ve included a history of my credit utilization rate as well. Below the images I’ll walk you through what happened at each inflection point (numbered in red).

1. Pre Application: Score = 756, UR = 5%

After my December 2016 score was posted, I decided to jump on the Chase Sapphire Reserve bandwagon, back when it was a 100,000 point sign up bonus.  Prior to applying for that card, the last card I applied (and was approved) for was in December 2014.  My score had basically been level between January and December 2016.

2. Post Application: Score = 744, UR = 9%

After applying and being approved for the Chase Sapphire Reserve card (Yippee!), the next credit score showed a 12 point dip, from 756 to 744.  No other cards were applied for but I did have above average spending this month so my utilization rate was a bit higher (note that the Chase Sapphire Reserve credit line was not added prior to this score, so my overall credit limit was the same as in inflection point #1).  This drop is primarily the result of the hard inquiry from my card application but could also be slightly influenced by my higher spending that month.

3. First Active Month: Score = 789, UR = 0%

This score update is after I activated my new card and began to use it for purchases. The new card came with a $20,000 credit limit, so I’m assuming the bump in my credit score was the fact that my credit limit went from $95,000 to $115,000. In addition to the an increased overall credit limit, I had below average spending this month (less than 0.5% UR) which could have also influenced the score.

4. Second Active Month: Score = 777, UR = 3%

This score reflects normalized spending and my long term credit score increase (was 776 as of April 2017).  Prior to the new card, my average utilization rate was approximately $4,000/$95,000 or 4.2%.  With the new card and the same amount of spending, my new utilization rate was $4,000/$115,000 or 3.5%.  You can see how just the change in overall credit limit brought down my utilization rate and increased my credit score.

Summary

In the long run, what I found was that in my case (7 open accounts and 2 closed accounts) opening a new credit card actually increased my credit score.  This is best exemplified by looking at my score prior to any application (756) and then after everything had normalized (777).  Typically, your score will drop immediately after you apply for the card (inflection point #2), but then rebound higher than your original score because of the decreased overall utilization rate (inflection point #3).  In the long run, the lowered utilization rate results in a higher credit score than before.