Think Twice About Applying for Credit

Credit card issuers are offering a lot of incentives, but your credit score could suffer.

Americans paid down billions in credit card debt during the pandemic, with balances declining 17% in the first quarter of 2021 compared with a year earlier, according to the Federal Reserve Bank of New York.

But now that the economy is recovering, credit card issuers are eager to entice new applicants with flashy deals and sign-up bonuses. For example, the Chase Sapphire Preferred Visa and the American Express Platinum card are offering up to 100,000 bonus points for new cardholders.

While you might be inclined to take advantage of these deals, some short-term credit decisions could lead to long-term damage to your credit score. Whether you’re applying for credit for the first time or have an established credit history, it’s important to consider how new lines of credit could affect your ability to obtain credit down the road.

Existing credit history. If you already have a credit history and are looking to apply for new credit, your biggest consideration is timing. Applying for a credit card will trigger a “hard inquiry” into your credit report, and each inquiry can lead to a two- to five-point deduction in your credit score.

For that reason, if you’re looking to apply for an auto loan or mortgage, hold off on credit card applications so you can secure the lowest interest rates possible. Experts recommend avoiding new applications for at least six months before applying for a mortgage; credit expert John Ulzheimer, author of The Smart Consumer’s Guide to Good Credit, goes so far as to suggest a year of “credit downtime.”

Even if you’re not taking out a significant loan soon, there are other timing considerations that come into play. Credit expert Gerri Detweiler, author of The Ultimate Credit Handbook, explains that although multiple mortgage and auto loan inquiries in the same time period (about 14 to 45 days) are often grouped together in your credit report and won’t hurt your score, that’s not the case for credit cards. Because each individual hard inquiry will impact your credit score, Beverly Harzog, author of The Debt Escape Plan, suggests waiting four to six months between new applications.

In addition, applying for multiple credit cards to reap the benefits of rewards or sign-up bonuses—a practice known as credit card stacking—could backfire. Credit card companies are aware of this practice and may deny your application if they think you’re trying to stockpile rewards.

No credit history, no deal. If you don’t have a credit history—you’re a college student, for example, or a recent graduate—you’re unlikely to be approved for most of these credit card offers. Instead, work on developing a good credit history so you’ll qualify for low rates and generous incentives in the future. Many major credit card issuers offer student credit cards, which have lower credit limits and student-friendly rewards to help new users develop a responsible credit history. Another alternative is a secured credit card. With this option, you put down an initial deposit (usually $300 to $500) that serves as your credit limit. As you build credit, you can switch to a traditional un­secured credit card with a higher limit.

Whichever option you choose, paying off your balance every month will ensure you remain creditworthy and prevent you from accumulating debt you can’t repay.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 12 Best Tech Stocks to Buy for 2022
tech stocks

The 12 Best Tech Stocks to Buy for 2022

The best tech-sector picks for the year to come include plays on some of the most exciting emergent technologies, as well as several old-guard mega-ca…
January 3, 2022
How to Know When You Can Retire

How to Know When You Can Retire

You’ve scrimped and saved, but are you really ready to retire? Here are some helpful calculations that could help you decide whether you can actually …
January 5, 2022


What to Do When You Can’t Pay Holiday Debt

What to Do When You Can’t Pay Holiday Debt

More Americans borrowed money to pay for holiday purchases and now the bill is due. Balance transfer cards offer a reprieve.
January 19, 2022
How to Just Say No to Binge Spending
Smart Buying

How to Just Say No to Binge Spending

Don’t let emotions steer you into buying things you don’t need or can’t afford. Know the warning signs and follow these tips.
January 14, 2022
Freeze Your Credit in 3 Steps
credit & debt

Freeze Your Credit in 3 Steps

Freezing your accounts at the three major credit bureaus is the best way to prevent thieves from opening new credit accounts in your name.
January 10, 2022
Good Marriage, Bad Credit
Starting a Family

Good Marriage, Bad Credit

Credit reports aren’t merged for married couples, but their individual records affect joint loans.
December 21, 2021