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information. The idea of earning free flights and hotel stays just by signing up for the right credit cards seems too good to be true, and there are plenty of myths about how it all works. When you’re trying to introduce someone to the world of reward travel, you may have to dispel some of those misconceptions. One of the most common things people believe when they start
applying for new credit cards is that those actions will negatively and permanently impact their credit scores. While it is true that recklessly opening new lines of credit and abusing them (i.e. racking up large balances, carrying interest and missing payments) can hurt your credit score, there is no long-term impact on your score from simply opening new accounts. Related: Yes, I have 22
credit cards; here’s why Since credit card sign-up bonuses are the foundation of travel rewards, today we’ll take a look at how your credit score is affected when you open a new credit card. New to The Points Guy? Want to learn more about credit card points and miles? Sign up for our daily newsletter. Even if you’ve done your research and
decided which card you want to start with, you should not apply for it until you understand how your credit score is calculated. Here’s a breakdown of the factors involved: Related: How credit scores work
Sign up for our daily newsletter Your credit is likely to be checked dozens of times over the course of your life, whether you’re applying for a credit card or starting a new job. There are two different types of inquiries, and it’s important to understand the difference. Hard inquiries are times when your credit is checked in connection with an
application for a new line of credit, such as a credit card or loan. These inquiries get reported to the credit bureaus and are the ones that appear on your credit report — and ultimately affect your score. Related: What is the difference between a hard and soft pull on your credit
report? A soft inquiry would be if you checked your own credit report (to figure out if you were under 5/24 with Chase, for example) or let your employer check your credit as part of the hiring process. Soft inquiries do not get reported to the credit bureaus and won’t impact your score in any
way. Related: Does Chase’s 5/24 rule count inquiries? Almost every time you apply for a credit card, you will receive a hard inquiry on your credit report. There are some exceptions, such as the fact that American Express often won’t inquire about existing customers until the new application is
approved. While the exact impact may vary from case to case, generally speaking, you can expect your score to drop by about five points each time you apply for a new credit card. This might seem scary if you’ve been working to improve your credit score for a long time, but it’s important to remember that the exact number is rarely what banks look at when evaluating your application. They’ll put you
into a range, say, 700-750 — so if your score drops from a 740 to 735, it is unlikely to have any real effect on future approval odds. Related: What is a good credit score? Having too many recent hard inquiries can drag down your score. Credit Karma says that your score starts to be impacted with three to four recent inquiries, but especially once you get above five. The inquiry
will stay on your credit report for up to two years, but the impact fades over time. If you see a jump in your credit score one month that’s not linked to any obvious event, such as paying off a balance, it may be the effect of your inquiries fading in relevance. A good credit score is something you can leverage to your advantage. If you put your score behind a glass display case and
never tap your available credit, you’re leaving valuable rewards on the table. I currently have nine inquiries on my TransUnion and Equifax reports, yet my scores are both excellent. This is mainly because I keep my utilization ratio low, pay every bill on time and never miss a payment. Even though my nine hard inquiries place me in the red zone (according to Credit Karma), my overall credit health
is great. One area where you’ll start to run into trouble is with card issuers that are “inquiry-sensitive.” This is not an official policy, but certain banks — including Citi and Capital One — will often reject applicants with excellent credit scores because they have too many recent inquiries on their credit reports. As an example, I applied for the
CitiBusiness® / AAdvantage® Platinum Select® Mastercard® to take advantage of a past sign-up bonus, and I was rejected partly because of the large number of recent inquiries on my credit report. The information for the CitiBusiness AAdvantage Platinum card has been
collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer. Unfortunately, there’s not much you can do about this other than be aware of the policies. If you’re one of those people who likes to apply for credit cards in batches of two to three at a time, you should try and do your Citi and Capital One applications first to minimize the number of recent inquiries on your report. Related: The ultimate guide to credit card application restrictions Bottom lineA crucial step in becoming comfortable applying for credit cards is learning the factors that affect your credit score knowing that the impact on your score from an application is minimal. A five-point drop is a small price to pay if it helps you unlock a sign-up bonus worth $1,000 or more in free travel. Remember that the drop is only temporary. Not only will the effect of the inquiry fade over the course of two years, but in the long term, you can also boost your score by continuing your history of on-time payments and increasing the average age of your credit accounts. Additional reporting by Benét J. Wilson. Featured image by NurPhoto via Getty Images Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities. TPG featured cardTPG Exclusive Offer TPG Exclusive Offer Intro offerEarn 150,000 points120,000 points Recommended Credit670-850 Good, Excellent Why We Chose ItIt's hard to find a card that competes with the mile-long list of benefits that come with the Amex Business Platinum. While it's certainly not the card for the average consumer, a business owner with tons of expenses -- especially related to travel -- will find this card incredibly valuable. This card is similar to the consumer version that Amex offers, but with more business-oriented perks around statement credits and earning rates that are a better fit for business owners. Pros
Cons
TPG Exclusive Offer TPG Exclusive Offer Rewards Rate
Why We Chose ItIt's hard to find a card that competes with the mile-long list of benefits that come with the Amex Business Platinum. While it's certainly not the card for the average consumer, a business owner with tons of expenses -- especially related to travel -- will find this card incredibly valuable. This card is similar to the consumer version that Amex offers, but with more business-oriented perks around statement credits and earning rates that are a better fit for business owners. Pros
Cons
How much does your credit score drop when you apply for a credit card?While the exact impact may vary from case to case, generally speaking, you can expect your score to drop by about five points each time you apply for a new credit card.
Does applying for a credit card hurt credit score?Applying for credit cards can damage your credit scores. Just a single application may shave a few points off your score. But multiple applications for cards in a short span could suggest you are a riskier borrower than someone who applies less often.
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How does applying for a credit card affect your credit
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