Does applying for a credit card affect my credit score?

Getting a new credit card can open a world of rewards and pave the way to better credit health. But there’s a good chance the question above is niggling away at the back of your mind. 

Let’s take a look at what happens when you submit a credit card application, and explore how it can affect your credit score. We’ll also show how a new credit card can potentially get your score moving in the right direction.

What happens when you apply for a new credit card?

The credit card application process begins after you consent to a hard credit check. Lenders need your permission before they can request a copy of your credit report for evaluation.

Once the credit check begins, the lender examines the details on your credit report. They’ll take a closer look at things like:

• Account and payment history.

• Current debt levels.

• Presence on the Electoral Register.

• Court records, if any.

• Financial associations.

• Previous credit application searches.

Lenders use your personal details and credit report to determine whether you’ll be a suitable customer. Each lender has its own criteria for offering credit, so getting an approval from one lender doesn’t guarantee the same result from another.

What’s the difference between hard and soft credit checks?

When applying for a credit card, you may see an option to use their ‘eligibility checker’, along with a guarantee that the check won’t affect your credit score. Credit card issuers do this by performing a soft credit check instead of a hard check.

But not all lenders offer eligibility checks, so it’s crucial to know what kind of search will be conducted before you give consent. Here’s the difference between the two checks:

• Soft credit check: They’re mainly used to verify your identity and get a snapshot of your credit health. 

• Hard credit check: Lenders perform a hard credit check (or a ‘credit application search’) when evaluating whether to approve your credit application. They look at your entire credit history to get an idea of how you manage debt. Hard credit checks are retained on your credit report for 12-24 months, depending on the credit reference agency.

  • TransUnion typically retains credit application searches for two years, while Experian and Equifax keep them for one year.

Note that the results of credit applications aren’t recorded on your file. And while hard credit checks don’t automatically harm your credit score, having too many in a short space of time can leave a dent due to the uncertainty they introduce. Lenders might view them and think you're getting rejected repeatedly, because they can only see the number of checks performed and not outcomes. Or they could get worried that you’re being accepted and taking on a lot of debt – adding a level of uncertainty and risk. 

Does my credit score decrease when applying for a credit card?

Applying for one credit card doesn’t lower your score automatically, because it’s not necessarily a negative entry. It’s considered a reasonable credit activity that can demonstrate experience in managing credit. 

The only time a credit card application can adversely affect your credit score and potential credit eligibility is if you’ve submitted a large number of applications within a short period.

Remember: credit scores are calculated based on your credit activities (e.g., repayment history) and other records on your credit report (e.g., Electoral Roll information, defaults, insolvencies, etc). So, if your credit score went down after applying for a card (regardless of the result), it’s likely due to a combination of other factors, not just the application itself.

Does the outcome of a credit card application affect my credit score?

Your credit card application outcomes aren’t recorded on your credit report, so they don’t affect your overall score. The only thing a lender can see on your report is the number of applications you’ve made in the past 12-24 months. However, if your application is approved and you get a new card, your credit score might decrease temporarily.

Can a new credit card account increase my credit score?

Getting a new credit card may help improve your credit score in the long term, but remember that credit score improvements ultimately rely on how you consistently manage your debt. This means it’s a good idea to only apply for the credit you really need, rather than applying for a credit card simply to try to raise your credit score.

Here are some ways a new credit card might help with your credit score:

• A new card may decrease your overall credit utilisation: Your credit utilisation rate is calculated based on your usage and credit limit across all of your cards, so having a new one may help improve your utilisation rate. 

  • For example, if your total credit limit across three cards is £3,000 and you spend £1,500, your credit utilisation rate would be 50% (1500/3000 x 100). But if you have a new card with a £1,000 limit and you spend £300, your new overall credit limit is £4,000 with an overall spend of £1,800. That lowers your credit utilisation rate to 45% (1800/3000 x 100).

  • The general recommendation is to keep your credit utilisation rate at around 30%, as this helps to show lenders that you can effectively manage your credit.

• It can improve your range of credit options: A new credit card could improve your credit mix. Lenders can see that you can manage different accounts well if you have various types of credit cards with a good overall payment history.

• More positive payment history on record: Although the effect is not immediate, a new credit card can help establish more payment history on your credit file. Having multiple good payment histories demonstrates excellent credit management.

Do guaranteed or pre-approved credit cards affect my credit score?

Lenders typically send ‘guaranteed approval’ or ‘pre-approved’ credit card offers to customers when they’re already familiar with that person’s financial circumstances. Lenders do this by running a soft credit search, similar to how you might use an eligibility checker to see your approval chances.

But applying for a ‘pre-approved’ or ‘guaranteed approval’ credit card doesn’t necessarily mean you’ll be approved immediately. Lenders still need to perform a hard credit search to confirm they have the correct information about you. The application may not affect your credit score, but it will stay on your credit record for a year or two.

How many credit cards can I apply for in total?

Technically, there’s no limit to the number of credit cards you can open. If the lender thinks you can make the monthly payments and maintain the account, they’ll likely approve your application. But this doesn’t mean you should apply for as many credit cards as you can at once. Doing so can suggest to lenders that there may be desperation for credit. Don’t apply for credit you don't want or need just to boost your credit score. 

A recommended maximum number would be 10-12 credit applications over the course of a year.

Should I avoid applying for a credit card entirely?

Not applying for any credit cards at all is generally not the best idea, because to build a solid credit history you need to demonstrate some level of activity on your credit file. Not having any searches or open accounts on your credit report makes you ‘credit inactive’, which makes it hard for lenders to see that you can use credit and make timely repayments. This adds perceived risk. 

Should I still apply for a credit card with a low credit score?

Before you fill in an application, it’s worth considering why your credit score is low in the first place:

• Several late payments: If your credit score is low because you’re behind on paying several accounts, it may be worth getting some financial advice. A new credit card won’t help with your repayments, and lenders are more likely to decline your application.

• High credit utilisation ratio: If your balances are high and lots of credit accounts you have are maxed out, consider paying them down instead. Although a new credit card can lower your utilisation ratio, high balances can mean overburdening yourself with debt.

• Presence of negative markers: Negative markers, such as defaults and County Court Judgments, stay on your credit report for six years. Even if these markers are resolved, some lenders still worry about them in applicants’ reports. Instead, focus on making on-time payments to your credit accounts to demonstrate that you can handle debt again.

To recap:

Applying for a credit card doesn’t automatically affect your credit score, but it does get recorded on your credit report. The only time a credit card application becomes a problem is if you’ve applied for multiple cards in a short period – having too many of them at one point can spook a lender.

If you see a slight drop in your credit score after getting accepted for a new card, don’t worry – this is temporary. As long as you manage your new card well, you’ll be back to improving your credit rating again.