Why Is My Credit Score Low After Getting a Credit Card?

So you went and got yourself a credit card. For every person, this is something normal. If you want to build credit, you need to learn how to handle credit. It is a great financial tool and if it’s used correctly, it might even improve your credit. With that in mind, it’s understandable that you’d be surprised over a lower credit score when all you did was get a new credit card.

What happened there? You did not miss any payments; the chances are you didn’t even use your credit card yet. Still, your credit score seemed to take a hit somehow. So, you might ask, “why is my credit score low after getting a credit card?” Well, this article will shed some light on that.

Can a New Credit Card Hurt Your Credit Score?

There are certain circumstances in which your credit score might end up being hurt by a new credit card. Before you open a new line of credit, you may want to consider the following setbacks that might attach themselves to your credit card.

Length of Credit History

When your credit score is calculated, the factors entering the calculation won’t only be your credit utilization and your credit history. The credit company will also take a good look at your credit history length. This category marks about 15% of your FICO score and 21% of your current VantageScore credit score.

Hard Inquiry

When you get a new credit line, you will receive permission to get into your credit report. This credit access type is referred to as a hard inquiry, and it has the ability to damage your credit score.

Depending on the circumstances, this hard inquiry is typically very small – or sometimes, it might not be noticeable at all. Most of the time, you can get your credit back on track quite fast. Damage done by hard inquiries can go away in as little as one month, as long as you take care of your credit health.

Increased Credit Mix

You may not have had a credit card until now; even so, the chances are that you probably had other forms of credit such as a car loan or a personal loan. These are also known as installment loans: you get them, you pay them off, the account is closed once you are done with the final payment. It’s a no-strings-attached kind of loan.

A credit card, on the other hand, works on a completely different basis. Unlike installment loans that are a one-time-only type of loan, a credit card is referred to as revolving credit. This is the kind of credit that you borrow from on and on, numerous times, to a certain pre-set credit limit. In return, you will have to make minimum payments every month until the loan is paid.

Adding revolving credit to installment loans may aid your credit score, showing that you indeed know how to juggle money and credit. That being said, this increase might also temporarily set you back, even if you haven’t missed any payments yet. You should still be able to fix it as long as you make every payment on time. On the following credit score updates, you should already be able to see an improvement.

Before You Apply for a New Credit Card

It might be tempting for you to jump straight away and get a new credit card, but there are still a few things that you might want to consider first. Consider how you are planning on using that credit over the next few months.

Do you have any major purchases in mind? Maybe you want to finance a new car, or you wish to get a mortgage. In that case, you will want to have a stellar-looking credit – which is why you should consider putting off getting a new credit card. It would be a shame to get a bad interest rate on a mortgage simply because you wanted to buy a microwave last month.  

Check Your Credit Score

To make sure that you won’t be bumping into any problems when you get a new credit card, you might want to check your credit report firsthand. See whether there are any errors there or not, and dispute the errors on your credit report if you believe that the bureau made a mistake.

You may get a free annual credit report from TransUnion, Experian, or Equifax. Thanks to certain modifications to the policy, until April 2021, you may check your credit report for free every single week. This was made to aid those that had to apply for multiple jobs this year or are receiving public assistance income.

How Using a Credit Card Can Hurt Your Credit Score

The way you manage or use your credit card will have a great impact on your credit score. This impact might be good and actually, help you raise your credit score – or it might be so bad that it caused your credit score to drop.

If you make your payments on time and provide at least the minimum amount by the time the month ends, your credit will likely not be affected. Quite the opposite – the more careful you are, the more your credit score will steadily go up. To make sure you don’t miss any payments, you might want to set up an autopay system. At least, this way you will make sure that you do not forget to make a payment.

Also, while it is ideal to pay your dues on time, this is not the only thing that can harm your credit score. Your credit utilization rate will also affect the way your credit looks. If you believe that you will not be able to handle your payments in one month, try to keep the credit utilization rate lower than 30%.

If you max your credit card under those circumstances, you’ll be doing your credit more harm than you do good. This activity will be reported to the credit bureau, which may cause your credit score to take a hit.

How Closing a Credit Card Can Hurt Your Credit Score

Once you close off an account, you immediately reduce the credit amount that you can use. This will most likely impact your credit score, as your credit utilization rate will also increase. This is why it is typically advised that you do not close a credit line unless you plan on stopping using credit altogether. Even if you are no longer using that credit line, it can still help you out.

To keep that account active, consider adding a small recurring payment to it – such as a gym membership or a streaming service. That being said, even if you have to close it, your credit score should not be affected – not if you’ve paid your bills properly and have a long credit history attached to other cards as well.

The Bottom Line

Getting a new credit card will indeed slightly affect your credit score, but it will be minimal. As long as you make the payments on time, everything should be back on track in a few months.

Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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