Applying for credit cards can feel like a gamble. You spend the time to collect all of your personal information, fill out the application and then send it off into the abyss that is the internet.
You might be tempted to hedge your bets and apply for several cards at once. But before you do, find out how applying for multiple cards at the same time can impact your finances.
How Applying for Credit Cards Affects Your Credit
“Applying for multiple credit cards at once … is something that you should definitely avoid if possible,” says Priyanka Prakash, staff writer for small business loan comparison site Fundera. The main reason, she says, is that every new application for a credit card will result in a hard inquiry on your credit report.
Normally, a single hard inquiry will only ding your score five points or less, or maybe not at all. In the case of installment loans such as auto, home and student loans, multiple inquiries over a short period will usually be counted as just one, since creditors understand you need to shop around for the best rates and terms.
That’s not the case with credit cards; several inquiries over a short period can add up to a significant drop in your score. “While a single inquiry will likely have minimal impact on a FICO score, a trend of multiple inquiries in the past 12 months indicates greater credit-seeking risk and can have a larger negative impact on the score,” says Tom Quinn, vice president of scores at FICO.
That’s why, if you’re going to open a new credit card, it’s important to decide on your top choice and submit just one application rather than apply for many at one time.
[Read: The Best Rewards Credit Cards of 2018.]
How to Pick the Best Card
Check your credit. The first step in choosing the best credit card is making sure your credit is in good shape. With fair or poor credit, there’s a higher chance your credit card application gets denied. But even if you’re approved for a card, it will likely come with a higher interest rate than if you had excellent credit, which will cost you more money over the long run.
Start by reviewing your credit report. You can access all three from the major credit bureaus at AnnualCreditReport.com, which is the only site that’s federally authorized to provide credit reports at no cost. You should check your credit report for errors such as a misspelled name or closed account that’s still being reported as open. Also look out for any derogatory marks that need to be remedied, such as an account in collections.
In addition to checking your credit reports, you can also see your FICO credit score — which is the one evaluated by most lenders — for free through the FICO Open Access program, Quinn says.
Determine your goal. Rather than opening just any card, you should look for one that accomplishes a specific financial goal. Why are you considering a new credit card in the first place? What need isn’t being met by your current card? Narrowing down the type of card you want based on your goals will help make finding the right one a lot easier.
Shop around for the best deal. Fortunately, it’s easy to compare offers without filling out an actual application. Credit card comparison tools round up the best cards on the market and help you easily compare factors such as interest rate and credit needed.
You also want to compare other factors that could impact your bottom line. For instance, some cards charge an annual fee; it might not be worth paying unless the rewards are generous. Perhaps there is an introductory zero percent annual percentage rate for new customers that could help you pay your debt down quickly.
[Read: The Best Balance Transfer Credit Cards of 2018.]
What if Your Application Is Rejected?
Quinn says it’s not recommended that you keep applying for credit cards if you’ve been rejected, since it’s likely you’ll continue to be rejected and rack up additional hard inquiries in the process.
Instead, find out why you were rejected. You should receive an adverse action notice within two weeks to a month, stating the specific reasons your application was denied. The notice will also say which credit bureau provided the information used to make a decision and how to contact it if you think there’s a problem.
If you were denied because of something on your credit report, you are entitled to receive a free copy even if you already pulled it earlier in the year. If your credit score was the issue, the creditor will also send a copy of your score and an explanation of the factors contributing to your score.
It’s also possible that you were denied due to something other than your credit. For instance, you might not meet income requirements. Whatever the reason, find out what it is before applying for another card so you can fix the issue.
[Read: The Best Cash Back Credit Cards of 2018.]
How Many Cards Should You Have at Most?
Even though you shouldn’t apply for multiple credit cards at once, owning several cards is another story.
“It’s certainly OK to have multiple credit cards. Most people do,” says Prakash, noting the average American has two to three credit cards. However, that doesn’t necessarily mean you should keep your wallet full of plastic. If you’re going to have multiple credit cards, it’s a good idea to follow a few rules.
Use credit cards strategically. “When you have multiple cards, make sure they each address a different need,” says Prakash. “For example, maybe one gives you rewards for dining out, the other for travel. That allows you to smartly use different cards to your financial benefit.” Similarly, if you’re a frequent traveler, you might want a card that doesn’t charge foreign transaction fees. The point is that each card you have should accomplish a specific goal.
Always pay the balance. Having a stash of cards with low rates and generous rewards won’t do you any good if you carry a balance month over month and rack up interest charges. Only charge what you can afford to pay back at the end of the month to maximize the benefits of your cards.
Keep alerts on each account. The more credit cards you have, the easier it is to lose track of payment due dates or miss signs of fraud. By setting up text or email alerts through your card’s online banking platform, you can keep tabs on all your cards’ activity. Consider setting alerts for every time a transaction over a certain amount goes through or when the bill is due.
More from U.S. News
The Pros and Cons of Credit Cards
Do I Have Too Many Credit Cards?
Credit Card Advice That Doesn’t Always Work
Should You Apply for Multiple Credit Cards at Once? originally appeared on usnews.com
