Why Did My Credit Score Drop After Getting a Credit Card?

If you’re like any of us living in the United States, then you probably want to ensure that you maintain the best possible credit score. If you have applied for or obtained a new credit card account, you may have noticed a drop in your credit score and this is totally normal. We often get asked the following question by our reader: Why did my credit score drop after getting a new credit card? We will answer this question in much detail below.

Why Did My Credit Score Drop After Getting a Credit Card?

Your credit score dropped after applying for a credit card because the bank that issued your credit card conducted a hard pull, commonly known as a hard inquiry on your credit score, which will lead to a temporary and slight drop in your credit score regardless of whether you’re approved for the card or denied.

Also, your credit score may have dropped because being approved for a new credit card lowers the overall average age of your credit accounts, which can also cause a drop in your credit score.

A third reason why your credit score may have dropped is if you performed a balance transfer at the time you applied for the credit card. The higher the balance you carry on your credit card, the more you will increase your credit utilization. An increase in credit utilization can cause your credit score to drop. The higher utilization of credit is weighed by looking at the particular card with the balance, as well as the overall or combined balances on all of your credit cards. The higher your credit utilization, the sharper the drop in your credit score.

Hard Inquiries vs Soft Inquiries

Hard Inquiry

As previously mentioned, applying for a new credit card often causes a drop in a person’s credit score because the issuing bank performed a hard inquiry. So, what exactly is a hard inquiry? And what is the difference between a hard inquiry and a soft inquiry?

A hard inquiry is a request by a card issuer to gain access to your credit report. Whenever a person applies for a new credit card, the card issuer requests a copy of your credit report. The report is used by the card issuer to determine whether they should approve you or deny your request for a new credit card.

Whenever a card issuer performs a hard pull on your credit report, an inquiry is added to your credit report. This hard inquiry will almost always cause a small drop in your credit score, however, such a drop is temporary in nature. Applying for one credit card within a short period of time is fine, but applying for many credit cards all at the same time can cause a substantial drop in your credit score.

Inquiries one your credit score makeup approximately 10% of your credit score. As such, applying for a new credit card or being approved for one should not cause a drop more than five points to your credit score. However, if you apply for too many cards at the same time, the number of points your credit score will drop will add up. If you’re thinking about buying a home, you should avoid applying for too many credit cards to keep your credit score as high as possible.

Also, applying for too many credit cards within a short period of time could signal to creditors and lenders that you’re having financial problems and so you’re resorting to credit cards for money. The best thing to minimize the impact that a new credit card has on your credit score is to use it responsibly and pay the credit you’ve used as quickly as possible.

Soft Inquiry

A soft inquiry is a pull of your credit score, however, a soft inquiry does not count against you as does a hard inquiry. Soft inquiries do not cause a drop in your credit score because you’re not applying for a specific credit product, rather, a person or company is requesting a copy of your credit score for a purpose other than extending credit.

For example, if you apply for a job, a potential employer may request a copy of your credit report, this request is known as a soft check and will not cause a drop in your score. Also, when you pull your own credit score, this is a soft pull because you’re not requesting credit. However, if you’re applying for a loan or credit card, such applications will cause a drop in your credit score. The drop in your score can be anywhere from five points to ten points.

How to Improve Your Credit Score After It Drops?

If you recently applied for a credit card and you noticed a drop in your credit score, here are a few things that you can to improve your credit score:

  • Make payments on your accounts – Making payments on your accounts keeps your credit utilization low. Keeping this ratio below 30% is recommended for the best possible credit score. So, don’t spend more than you can afford to pay off each month. This ensures that you keep your credit utilization low and your credit score as high as possible.
  • Don’t apply for more credit cards than you need – Applying for too many credit score during a short period of time can cause a drop in your credit score. So, don’t apply for too many credit cards at once as this will cause a noticeable drop in your credit score.
  • Don’t close old accounts – Closing an account can have a negative impact on your credit score because this decreases the overall age of your accounts. You want to keep old credit cards open because having an old credit card that you have made timely payments on can help your credit score
  • Pay credit cards with high balance – Credit scores are calculated by looking at the balances of individual accounts, as well as your overall account balance. So, if you have credit cards with high balances, you should pay off such accounts first to improve your credit score
  • Create a good mix of credit – Credit reporting agencies like to see that you have a variety of accounts. For example, they like to see that you have auto loans, credit cards, student loans, and home loans. They don’t like seeing a credit report that only shows, for example, credit cards. The better the mix of credit accounts, the better your score will be
  • Pay off any collection accounts – If you have any collections that appear on your credit card, you should contact the collections agency and ask them about the option of paying off the amount you owe, as well as removing the collection account from your credit report

What is the Quickest Way to Improve Your Credit Score After It Drops?

The quickest way to improve your credit score after it drops is to pay down the balances on your accounts, and if you can’t pay down the balances on your credit cards, ask your bank to increase your credit limit. Increasing your credit limit, reduces your credit utilization ratio, which can cause a decent increase in your credit score.

Also, if you have any collections accounts that show up on your credit report, you should contact the collections agency and negotiate a deal where you agree to pay the debt in exchange for them to remove the collections account from your credit report. Removing a collections account from your credit report could increase your credit score by 50+ points. That said, the increase will be different from one person to another, but we have personally seen credit scores increase by more than 50 points after a collections account has been removed.

Frequently Asked Questions We Get at Credit Score Planet?

1) How quickly can I raise my credit score?

This depends on how quickly you take action and how quickly the changes you make are reported to the credit reporting bureaus. For example, if you pay off the balances on your credit card accounts and you have any collections accounts removed, you can see a huge increase in your credit score within approximately 30 days. However, this is different from one person to another, depending on what other factors are impacting your credit score.

2) How can I raise my credit score by 100 points in 30 days?

Again, although we cannot guarantee a 100 point increase in your credit score, making payments on accounts with high balances, paying off collections accounts and negotiating their removal, as well as adding a mix of credit accounts will all help increase your credit score.

3) How fast can my credit score go up?

This answer to this question is different from one person to another. But, lets say that you pay off all accounts with high balances, and your current on all other accounts, your credit score could improve dramatically as soon as the financial institutions you have credit accounts report the changes you’ve made. Changes are usually reported at least once a month, so you could see your credit score go up within as little as 30 days.

4) Why did my credit score drop after I opened a new credit card?

Applying for a new credit score can cause a drop in your credit score because credit reporting agencies ding persons who apply for new credit. Every time a person applies for a new credit account, a hard inquiry is placed on his credit report. A hard inquiry (also known as a hard pull) decreases the applicant’s credit score by a few points. That said, this drop in your credit score is temporary and your credit score will eventually recover. Make your accounts payments on time and you should notice a decent improvement in your credit score.