When shopping for a new credit card, you should consider all the ramifications that come with it.
- How will simply having it impact your spending?
- If there is an annual fee, is it worth it?
- Can your budget handle a new card?
- Do the rewards match your spending habits?
- How will opening a new account impact your credit score?
Credit History and Age of Credit
Credit history refers to how long any credit account has been open. The longer an account has been open with good payment history and no late payments, the better it is for your credit score.
To get credit age, credit bureaus calculate the average of how long all your credit accounts have been open.
Impact of a New Credit Account
When considering the impact on your average age of credit, understand that while opening a new credit card can hurt it, if you go about it in the right way you should be fine.
First, consider that when you open a new account, it does affect both your credit history and credit age — two important components of your score. The former is how long any individual account has been open; the latter is the average time all of your listed accounts have been open. If you don’t have a lot of accounts on your credit report, opening a new card may have more of an impact than if you have several open accounts.
While your credit score will take a hit when you open a new credit card account, the impact is usually temporary and, once you start making timely payments, your score will rise again. Keep in mind that simply applying for a card will ding your score because it triggers a hard credit pull.
Other Important Factors
The other thing to consider here is that credit history and credit age do matter, but they aren’t the biggest factors used when calculating your credit score. They make up 15 percent of your FICO score and 21 percent of your VantageScore, which makes them significant but not overwhelming. Paying on time, conversely, makes up about 40 percent of both scoring models. Be smart when you open a new account of any kind, and your credit score should make it through relatively unscathed.