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A lot of people are disappointed to find out that their credit score has gone down after opening up a new credit card. In some cases the credit score goes down twice, once directly after an application and then again sometime around a month or two later. This causes a lot of worry but it’s completely normal when this happens and it’s only temporary. Here’s what’s likely going on when this happens.
How is a credit score determined?
To understand what’s happening, you first need to have a good grasp on how credit scores are determined. Your credit score is determined by the following categories:
- Payment History (35%)
- Utilization (30%)
- Credit History (15%)
- New Credit (10%)
- Mixed Credit (10%)
In this instance, the biggest factor that will be negatively affected is the new credit category that makes up 10% of your score. New credit looks two major things affected here: recent inquiries and new accounts opened.
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When you apply for a line of credit, the lending institution will typically do a hard pull on your credit report. For many, this results in about a 3 to 5 point drop in your score.
For lower credit scores or for people with thin credit profiles this drop could be much higher (even over ten points).
For those with more established credit reports (or people with perfect credit scores) the drop could be negligible.
The drop in your score from this will be instant.
If you check your credit score right before and after you submit an online application for a credit card you will likely see that your score has already dropped. The good news is that the negative effect of these inquiries will diminish in roughly 60 to 90 days.
At that point your score should start to recover or already be completely recovered from the hard pulls. After 12 months, the hard pulls will no longer affect your FICO score and after 2 years the inquiries will disappear entirely from your credit report.
A lot of people are aware of the first drop caused by hard inquiries, but I still get emails from people who are concerned when their score inexplicably drops a second time, usually around a month later.
New accounts opened
In addition to hard pulls, new accounts will also often drop your score but it may not be instantly. this is because some banks take a few weeks (or even months) to report a new account to your credit report.
When that new account is reported, it brings down your credit score even more. Just how much it goes down depends on factors like your credit history and how many other recent accounts you’ve opened.
If you have a thin credit profile and you were to open more than one account at one time then you could see a pretty significant drop in your credit score that happens a month or so after your initial drop from the hard inquiries.
Some people feel the need to panic when this happens but they have to remember that their score will eventually go up as a little bit of time goes by.
A credit score will jump up even quicker if those new accounts also helped bring down that person’s credit card utilization and it’s possible that within 120 days you could see a score make a dramatic jump back up so that the credit score rises to a point much higher than it was before that first hard inquiry brought it down.
So if you’ve just opened up a credit card or two and you’ve seen your credit score take two different drops back to back, don’t worry — this is completely normal. Just wait it out for a couple of months and make sure you are responsibly using your credit cards and you will eventually see your score jump back up very soon.
UponArriving has partnered with CardRatings for our coverage of credit card products. UponArriving and CardRatings may receive a commission from card issuers. Responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.
Daniel Gillaspia is the Founder of UponArriving.com and creator of the credit card app, WalletFlo. He is a former attorney turned full-time credit card rewards/travel expert and has earned and redeemed millions of miles to travel the globe. Since 2014, his content has been featured in major publications such as National Geographic, Smithsonian Magazine, Forbes, CNBC, US News, and Business Insider. Find his full bio here.