Many of us ask the same question when it comes to opening a new credit card: How will this affect my credit score? It’s a totally fair one to ask. Your credit score is a meaningful part of your financial profile, so it’s prudent to keep it under close watch. In doing so, it’s also important to know exactly what goes into the calculation of your score. If you’re a responsible credit card user and pay off your balance every month, you may be surprised to learn that adding a new card to your wallet could actually boost your credit score.
Your credit utilization makes up a whopping 30% of your credit score.
So what does that mean? Your credit utilization is the amount you owe across all of your credit cards as a percentage of your credit limit across those cards. This metric shows creditors that you can responsibly use and manage your credit lines without overextending yourself. Let’s say you have two credit cards: one has a $2,000 limit, and the other has a $3,000 limit. You currently have a balance of $500 on your first card and $1,000 on your second. Your credit utilization would be:
(Balance on Card 1 + Balance on Card 2) / (Credit Limit on Card 1 + Credit Limit on Card 2)
($500 + $1,000) / ($2,000 + $3,000)
In this case, you are using 30% of the total credit extended to you. While 30% isn’t significantly high, the typical guidance is to keep your credit utilization in the 20-25% range. So how do you lower your utilization? You can either decrease your balance or increase your credit limit. Now let’s say you open a Charity Charge credit card and are approved for a $2,500 credit limit. Assuming your balance across cards doesn’t change, this would increase your denominator and lower your utilization to 20%, which is right where it should be.
Don’t go opening several cards at once. Be selective.
Opening a new credit card increases your credit limit, which can boost your credit score if you pay your balances on time. But it’s important to remember that each time you apply for a new card or loan, the issuer makes an inquiry into your credit history, which slightly dings your score. While the impact is temporary and fairly minimal, don’t get carried away and apply for multiple cards, a mortgage, and a car loan in a short time.
Instead, be selective in the cards you open, and choose one that aligns with your goals. If you are looking for a sustainable way to give back to your community, consider adding the Charity Charge World MasterCard to your wallet and earn 1% cash back on all purchases to support the nonprofit(s) of your choice. Opening a Charity Card credit card is an easy way to make a difference…and boost your credit score at the same time.
These real-life Charity Charge cardholders opened their cards with an eye toward giving back—to the community and to their credit scores.
“Even as a Stanford MBA, I realized I didn’t know a ton about personal finance. So when I realized that getting a new credit card could actually improve my credit score, applying for Charity Charge was a no-brainer.” – Chris M supporting Wounded Warrior.
“I recently attended a workshop on financial literacy and learned that if I have access to more credit, it will improve my credit score” – Vicki P supporting Austin Pets Alive