You’re in the market for a new, shiny credit card and you apply for a bunch of them that meet your requirements. A while later you find out your credit score has reduced drastically, despite your good repayment behavior and consistency.

So how did this happen?

First, you need to understand what happens when you send in multiple applications for a credit card, especially in a short period of time.

With every new application you submit, the credit card issuer dives into your report to check your history, which either leads to an approval or a rejection. The issuer skims through your credit report to look for information like open accounts, repayment history, delinquencies, penalties, and the current balance you’re carrying.

Every time an issuer looks at your report, an inquiry is raised. This then reflects on your report to state that someone has peeked at your credit history.

However, you should know that are there are two types of inquiries—soft and hard.

• Soft inquiries: When you request for a copy of your own credit report, this is considered as a soft inquiry. You can pull this report as many times as you want and it won’t affect your score. The reason your points aren’t reduced with soft inquiries is because you’re not looking for new credit; you’re just displaying responsible credit management behaviour.
• Hard inquiries: When banks or financial institutions ask for your credit report, this request is listed as a hard inquiry. This is because it means you’re requesting for a new credit card and the lender wants to view your history. Now, if you have an incredible credit history with no penalties, this type of inquiry won’t affect your score. However, if you have a poor history, you can expect an inquiry to knock off some points.

Why Will Multiple Credit Card Applications Reduce My Credit Score?

Not all hard inquiries are created equally. For example, you decide to apply for a home loan at 4 different financial institutions or banks within 5 days. You did this because you weren’t sure which lender would give you the best rates. However, this will only count as one inquiry.

Credit card applications, on the other hand, are far riskier. And there’s good reason for this. Applying for several cards in a short span of time indicates that you’re a riskier borrower. So for each application you submit, one inquiry is raised. And for every inquiry, a couple of points will be knocked off your credit score.

Besides a drop in your score, the lender might also reject your application because of the other applications. You’re either viewed as a desperate borrower or as someone who’s risking their finances by signing up for too many credit accounts.

A rejected application may also mean you’re looked at as a churner. What this means is when someone gets credit cards just to earn the sign-up bonus. Some people even close and reapply for their old credit card to get the bonus again.

For How Long Will the Inquiries Reflect on My Credit Report?

Your credit report has all the information for the past 12 months. Which means, your credit inquiries made within these 12 months will show up on your report and will be used to calculate your score. Once this time period passes, your inquiries will be removed from your report completely. Now, this limit is only available for credit inquiries.

How Do I Improve My Credit Score and Prevent it from Dropping Further?

Before you go on a credit card application spree, take a breather and do your research properly. Understand your requirements and then try to shortlist a card that meets them. Depending on your specific needs, this could either take some time or finish sooner than you expect.

It’s important to compare all the available options before hastily applying for credit cards. Not only does this affect your score immensely, but it also starts affecting your approval rate. When future lenders look at your report, they will categorise you as risky and you won’t get a financial product when you absolutely need it.

The second thing you can do is try to improve your existing credit report. For instance, if there are mentions of late repayments or some penalties, it would be good to follow consistency and ensure your dues are cleared on time.

The balances you hold from different accounts also affect your score. Plan your finances, see how much money you spare, and try reducing these balances to a minimum. For example, if the credit utilisation score on another credit card is at 50%, you must bring it to 30% or lower. Similarly, if other accounts have high balances, reduce them as much as you can.

It is ideal to put a hold on your expenses during this period. Sure, that smartphone you want is calling out to you. But do you really need it? Avoid spending on things you don’t require. This way, with the spare money, you can clear your bills quicker.

Before applying for any card, you should also check if you’re eligible for it. This is crucial because your application can rejected if you don’t meet the basic requirements.

And finally, submit just one credit card application at a time. When you’re researching for the best card in the market, use comparison websites and tools to make your search easier. Post application, wait to hear back from your lender. If your application is denied, wait for a while before you sign up for a new credit card.

And voilà, soon you’ll have a strong credit score and a great credit card as well!