Why Is My Credit Score Low After Getting a Credit Card? — Grow Credit Blog

Why Is My Credit Score Low After Getting a Credit Card?

The average number of credit cards per person in the US is 2.7, with 70% of us owning at least one credit card.

In other words, you probably know your way around applying for and using a credit card. You’ve learned that your credit score is important for getting good rates on loans, mortgages, and other forms of credit. You already know that a credit card is a great way to boost your credit score.

But you’re still left wondering, “why is my credit score low after getting a credit card?”.

The truth is that taking out a new card isn’t a fool-proof way to boost your score, and in some cases it can severely damage your existing credit score.

That’s why we here at Grow Credit are going to go over every reason why your credit score might drop after getting a credit card, how to avoid that happening, and we’ll even throw in the secret to never worrying about it again!

In this post we’ll cover:

Let’s get started.

What makes up your credit score

To simplify a little, your credit score is made up of the following elements:

Your payment history is made up of things such as how quickly you’ve repaid your debts in the past, whether you’ve made any late repayments, declared bankruptcy, and so on. It’s essentially the historical measure of how reliably you’ve paid back your debts and whether you’ve done so on time.

Credit utilization means the amount of credit you’re using versus the maximum amount you’re able to borrow. For example, if a credit card has a $100 limit and you’ve used $25 of it, you’ve used up a quarter of your available credit.

The length of your credit history is exactly what it sounds like - the longer you’ve had your various accounts for the better. This is because it shows your reliability in paying back debts over a long period of time.

Your credit mix is the various different types of credit you’ve dealt with. Showing that you’ve capably handled auto loans, student loans, credit cards, mortgages, and so on makes lenders more confident in your ability to pay them back.

Finally, new credit is a measure of how many new forms of credit you’ve taken out in a short space of time.

Why is my credit score low after getting a credit card?

We’ve all been there. Maybe you needed to take out a new credit card to have more flexibility with your ongoing payments, or perhaps you wanted to expand your credit mix.

Either way it can be a surprise when you check the results and find yourself asking “why is my credit score low after getting a credit card?”.

Why is my credit score low after getting a credit card?

#1 Credit utilization

If you opened a new credit card and made a large purchase or many smaller purchases without paying them off immediately, you will have “utilized” a lot of the allocated credit of your new card. This inflates your average credit utilization, leading to a hit in your credit score.

Why is my credit score low after getting a credit card?

#2 Credit history length

If you have a credit card that you’ve been using for years, taking out a new card will mean that the average length of your credit history is cut in half. A lower average history length means fewer points towards your credit score.

Why is my credit score low after getting a credit card?

#3 New credit check

Many credit cards require a “hard” credit check. This check will leave a mark on your credit file. If you’ve taken out multiple forms of credit recently requiring hard checks, this raises a red flag for lenders, which can lower your score until those checks are removed from your history.

How to avoid dropping your credit score when getting a credit card

You can avoid your credit score dropping by managing your credit utilization and avoiding hard inquiries.

Experian recommends you use no more than 30% of your allocated credit.

While you can't change the length of your credit history when taking out a new card, over time this will improve as the card matures.

To avoid hard checks, either wait a year between applications or choose cards that don’t require hard checks.

What are credit builder cards?

Credit builder cards are a great way to build your credit score without the downsides of traditional credit cards. They often require no hard credit checks to take out.

Their low limits and high interest rates help ensure you do not overspend, making them an excellent introduction into managing credit effectively.

The hassle-free card to help grow your credit score

Grow Credit helps you manage your monthly subscription costs easily. Just log your services, and pay them off each month.

Having our card means you can easily check your spending every month without sifting through bank statements. It will only allow payments for subscriptions, helping to keep your credit utilization low and your payment history clean.

In conclusion, Grow Credit is a helpful tool for managing finances, avoiding surprise fees, and doesn't negatively impact your credit score just for getting it.