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:

What makes up your credit score
Why is my credit score low after getting a credit card?
How to avoid dropping your credit score when getting a credit card
What are credit builder cards?
The hassle-free card to help grow your credit score

Let’s get started.

What makes up your credit score

Before we can say whether taking out a new credit card hurts your overall credit score, you need to understand exactly how your credit score is calculated.

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

Payment history (~35%)
Credit utilization (~30%)
Length of credit history (~15%)
Credit mix (~10%)
New credit (~10%)

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 (or still have outstanding late fees), 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, rather than giving a brief snapshot which could be inaccurate in the bigger picture.

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 shows that you’ve proved your reliability across many kinds of credit, which 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. There is a useful trick to know when it comes to taking out new credit cards while avoiding taking a hit on your “new credit” check, but we’ll get to that a little later.

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 (insurance, subscriptions, utility bills, etc), or perhaps you wanted to get ahead of the curve and expand your credit mix.

Either way it can be a nasty surprise when you check the results of your hard work and find yourself asking “why is my credit score low after getting a credit card?”. Isn’t this supposed to be boosting your credit score?

Well, it all ties into three aspects of your credit score that we’ve discussed above; your credit utilization, length of credit history, and your new credit check.

Why is my credit score low after getting a credit card? #1 Credit utilization

The first (and largest) aspect that could have caused your credit score to drop is your credit utilization.

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

Remember, lenders don’t take into account only your best credit utilization percentage- they assess all of your credit avenues and combine the overall utilization for all of them. This means that if your new card is being utilized a lot, you’ll be inadvertently showing lenders that you’re owing a lot of money on it.

Why is my credit score low after getting a credit card? #2 Credit history length

A similar story will be playing out with the length of your credit history.

Let’s say that you have one credit card that you’ve been using for 7 years. The length of your credit history will be as long as you’ve been using that one card for - congratulations, you’ve got a sizable history under your belt.

However, taking out a new card will mean that the average length of your credit history is cut in half. In other words, your FICO (credit) score will account for you having a credit history length of just 3.5 years instead of your original 7. A lower average history length means that you’ll get fewer points towards your credit score.

Why is my credit score low after getting a credit card? #3 New credit check

Finally, and most commonly damaging, is your new credit check.

Many credit cards require what’s called a “hard” credit check in order to take out. This means that the company giving you the card will perform a check on your credit history before deciding whether to approve you, and this check will leave a mark on your credit file.

Alone this doesn’t cause much of a problem, but if you’ve also taken out other forms of credit recently which required a hard credit check, this serves as a red flag for lenders.

If you’re taking out many new forms of credit at once lenders need to be wary, as you haven’t yet proven that you can reliably pay off all of your new forms of credit. Once again, this means that your credit score will drop until those checks are removed from your history.

It’s not the end of the world - hard credit checks are removed from your history after 2 years and usually stop affecting your score after 1 year - but it’s very likely that this is what caused your credit score to drop after getting a credit card.

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

Source, image used under Pixabay license

It’s not all doom and gloom, as there are ways that you can easily avoid your credit score dropping after getting a new credit card. These all relate to the issues mentioned above.

First, you should avoid using up too much of the credit limit on your new card. As stated previously, the credit utilization of your new card will affect your average utilization ratio, so the less you use of it the better.

If you have to make a large payment on your credit card or many smaller payments go out at once, don’t panic! All you need to do is pay off your card until you’re comfortably in the low ranges of your credit limit. For example, Experian recommends that you use no more than 30% of your allocated credit, as this will prevent it from negatively affecting your credit score.

Sadly there’s not much that you can do about your average credit history length going down when taking out a new card. However, know that this will quickly pass, and will become a boon to your score eventually as the card matures.

The only way to avoid your credit score going down as much due to your credit history length is to own many forms of credit which have already been ticking over for years. After all, one new card will affect your average history length much less if you have several long-standing cards in your arsenal.

Finally, there are two ways to avoid hard credit checks for new cards draining your credit score.

The first way to avoid their impact is to avoid taking out a new credit card if you’ve already had a hard credit check in the last year. This shows lenders that you’re comfortable with your other recent credit avenues and prevents hard checks to your score from stacking up.

The second method is simple - you just avoid taking out credit cards which require hard credit checks to be eligible for them!

If you need a card with a large credit limit then this might not be possible, but if you’re just looking to build your credit score (especially if you have a bad score or you’re new to credit) credit builder cards are a fantastic solution which typically require no hadrit checks to take out.

What are credit builder cards?

Credit builder cards are one of the best ways to build your credit score without many of the downsides associated with traditional credit cards.

Builder cards have lower credit limits and higher interest rates, but in return they require no hard credit checks to take out. While this might sound scary, as long as you don’t use them for any large purchases and make sure to pay off your credit as soon as you use it, there’s pretty much no downside to using one instead of a regular credit card.

This also makes them a great introduction to people who have either never had a credit card before or who have struggled to get into the habit of managing their finances more carefully. The lower limit means that you physically can’t overspend to an unpayable degree, the lack of hard credit check means that owning one won’t limit you to avoiding other new credit for a year, and the high interest rates make a great motivator to habitually pay off what you owe as quickly as possible.

In other words, unless you can’t live without a higher credit limit, a credit builder card is the best way to avoid having a low credit score after getting a new credit card.

The hassle-free card to help grow your credit score

Here at Grow Credit we’re committed to helping you grow your credit score as quickly, easily and low-risk as possible.

That’s why our card lets you manage your monthly subscription costs without any hassle. All you need to do is log your subscription services, then pay them off each month.

Having our dedicated card to manage your subscriptions to fantastic services like Netflix, HBO Max, and Disney+ means that you can easily check how much you’re spending every month. No longer do you have to sift through your monthly bank statement - just check your Grow Credit account and judge whether there’s anything you want to cancel if you’re spending more than you’d like to!

Better yet, our card will only let you handle subscription services, so there’s no temptation to go on a spending spree. This makes it even easier to keep your credit utilization low, and the apple nature of subscription services means that you can keep your payment history squeaky clean.

That’s two elements of your credit score already being boosted.

Grow Credit can provide you with another form of credit (especially if you don’t already have a credit card), which boosts your credit mix rating, and there’s no hard check when applying for an account, so your new credit check won’t go down as a result.

In other words, Grow Credit is a credit card that lets you more easily manage your finances, leaves you practically immune to surprise fees and the temptation to splash out, and doesn’t hurt your credit score just for taking it out.

What have you got to lose?

Sign up for a free account today and wave goodbye to your low credit score.