Credit Score Risks: What happens when you apply for several credit cards? | Mint

The credit card landscape is evolving every day. Every now and then, credit card issuers are bringing new offers and benefits in their products, tempting you to apply for multiple credit cards. Beginners in the credit card space would often think that there is no harm in applying for several credit cards at once as there is no need to make payments. However, applying for multiple credit cards would adversely impact your credit score.

Why credit score is important?

A credit score is a three-digit number that determines your creditworthiness. Lenders use a credit score to decide whether to approve a credit card or loan application. It helps lenders determine whether you will be able to repay your credit card dues or loans in the future. A higher credit score will enhance your chances of getting credit in the future.

What happens when you apply for a credit card?

While applying for a credit card, the issuer goes through your credit report to determine eligibility for the card. This type of enquiry is called hard enquiry. Therefore, with each credit card application, the card issuer will make a hard enquiry on your credit report to check your eligibility for a credit card.

Impact of multiple credit card applications on credit score

Credit history

Applying for multiple credit cards would mean multiple hard enquiries on your credit report. In this scenario, your credit history plays an important role in deciding the effect of hard inquiries on your credit score. If you have a good credit history and a high credit score, a hard enquiry may have less impact on your credit score. However, if you have a poor or short credit history, a hard inquiry can severely lower your credit score. This is especially important for those who have just started to build credit.

Duration

It must be noted that the impact of a hard inquiry is temporary, that is, around 2 years; hence, you must not be discouraged from applying for a credit card because of it. Ensure that you do not apply for many cards in a short span of time.

Financial stress

Credit card issuers also perceive that having multiple hard enquiries would mean you are financially struggling and hence applying for credit. This will lower your chances of borrowing in the future. Issuers also look for other factors, such as payment history, income, and eligibility requirements, before approving a credit card application.

Some tips to avoid multiple hard inquiries

• Avoid applying for multiple credit cards in a short period of time.
• Always check your credit report and credit score and make sure that you meet the eligibility requirements before applying for a credit card.
• Apply for a credit card only if you need one to suit your finances. Do not get swayed by credit card offers, and try to get multiple cards at once.

Hard inquiries are an unavoidable financial practice that allows lenders to estimate your creditworthiness. It is advised to strategize your credit card applications in a way that the hard inquiries over a period of time are minimal. This helps you to maintain your credit score and enables you to get funds during an emergency.

(Note: Using a credit card carries its own set of risks)