How Do I Avoid Lowering My Credit Score?

Q: I am widowed, retired, love to travel and grateful I have the wherewithal to do so. I am looking at getting an airline credit card to take advantage of their 75,000 point offer that my daughter says is worth around $750.

I already have way more credit than I’ll ever use. I have two credit cards that I generally use. One is from a warehouse club and the other a hotel chain. I don’t use the hotel chain card but use the warehouse club card all the time.

Is there a “best” way to open the new card to avoid lowering my credit score? I have a credit score above 800 right now. But, I’ll probably need a new car in a year. And, I may move soon. If so, I’ll probably need to qualify for a mortgage.

How long will my credit score be affected after I open a credit card? Should I close the hotel card first? I certainly don’t need both cards. I pay my credit card balance in full each month. I’m pretty savvy with money and investing but this credit score stuff always confounds me.

Why Do High Credit Scores Matter?

A: You appear to have a good handle on your finances. But we understand exactly why you might be confused by the way credit reporting agencies build credit scores. It is confusing!

We don’t think there’s a better or worse way for opening up a new credit card. You simply apply for the credit card and the credit card company either denies the application or grants you the card with a credit limit the credit card company sets for you. For most people the process is pretty straightforward.

To your point, that application does impact your credit score directly. The problem with giving you an answer is that every person’s credit history is different. How much your score will rise or fall depends on all of the pieces of the puzzle: How much credit you have and how long you’ve had it, what your payment history has been, and what types of credit you have.

Why did my credit score drop?

From our experience, if you have a credit score of around 800, you might see a fall of 10 to 20 points when you apply for a new credit card. The good news is that drop should only be temporary. Usually, when you have a great credit score – which you do – the way you are used to managing money tends to keep your score stable.

For example, let’s say you apply for that credit card and do nothing else. You might start with a credit score of 800 and then see it drop to 780, as the creditor pulls a copy of your credit history. But we imagine you’d keep paying your bills on time and avoid huge new expenses. With those financial habits, we expect your credit score would be back to 800 within a couple of months.

You’re right about one thing: a good credit score will help you obtain a mortgage or car loan with better rates and less fuss. Your credit score helps your lender assess how risky a borrower you’ll be. When it comes time to buy a home, your high credit score means lenders will offer you their best interest rate.

Would a Credit Card Balance Transfer Help Avoid Lowering My Credit Score?

One thing you shouldn’t do: Close your hotel credit card. Especially when you’re applying for new credit. The credit reporting bureaus value the length of time you’ve managed an open account. The longer you’ve had the same account, the more positive impact it will have on your credit score. They also look at the total amount of available credit you have. If you close an account with a $10,000 credit limit, and it cuts your available credit in half, that could hurt you.

Closing a long-standing account with a large credit limit before you apply for new credit could lower your credit score 50 points – or more. You can close that credit card, but wait until you get approved for the new card. If you’re not paying annually for that hotel card, we think you shouldn’t cancel it. Even if you do, the impact should be temporary.