Credit cards are among the most important tools for building credit. However, you may have noticed that your credit score dropped after you got a new card. Why does this happen?
In most cases, your credit score falling isn’t a sign you’re doing something wrong. It's often something else causing the decrease.
Why is my credit score lower after I got a new credit card?
Credit card companies conduct a hard credit inquiry when you apply for a credit card, checking your credit report to decide whether to approve your application. These types of credit checks can lower your credit score, but it's usually only for a short period if you practice good credit habits. Sometimes, a hard inquiry may not affect your credit score at all, but it’s best to not apply for several credit cards within a short time because together, they could hurt your credit score.
It's also worth noting the difference between hard and soft credit inquiries. The latter don’t impact your credit score, because they're not tied to an application. Soft inquiries are usually done by employers or even yourself when you check your own credit report.
Average age of credit
Your credit history helps lenders determine your eligibility for a credit card. A longer history of using credit can improve your credit score, as it will look as if you’re more trustworthy, while a shorter history may have the opposite effect.
Your credit history accounts for approximately 15 percent of your credit score, according to Credit Karma. Lenders will look at the average age of your credit, which may include lines of credit, loans, and credit cards.
If someone has been paying back a student loan for 10 years and they've had a credit card for 4 years, their average age of credit is seven years. However, if that person gets a brand new credit card, their average credit age drops to around 4.6 years, which could impact their credit score. There really isn’t any specific age set out as ideal, but anything at least 6 to 10 years old would be good.
Beware that if you close a credit card, loan, or any other type of lending product, the average age of your credit will be shorter and your credit score could be impacted. This may even be the case after you finish paying off your student loans.
How to recover after your credit score drops
As long as you make payments on time and keep your credit utilization below 30 percent, you could improve your score. Set reminders or automatic payments to make sure you don't miss any payments, and try not to use more than one-third of your credit unless it's an emergency.