I opened a department store credit card this week. If I never use it, will it still hurt my credit score?

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December 30th, 2011 - Posted by Tasha

Q: I opened a department store credit card this week. If I never use it,will it still hurt my credit score?

A:  Opening a new credit card account may impact your credit score in the short run, whether you use it or not. That's because most credit scores take into account any new credit you've opened when calculating your score. Opening a new credit line is generally perceived as a having a slightly negative affect on your credit score.  However, by adding new credit to your existing lines of credit (other credit cards, etc) you are increasing the total amount of credit available to you which can be a good thing.  I'll explain below how this might actually help you in the long run.

Using the popular FICO score as a base line for how all credit scores are calculated, you can see from the diagram below that there are 5 different factors considered.  These are your payment history (are you making your payments on time), the amounts you owe, the length of your credit history, new credit and the different types of credit you use.

The 2 factors that come into play with your situation are "new credit" and the "amounts you owe".  Although applying for a new credit card may hurt your credit score a little bit in the short run, increasing the overall amount of credit available to you helps improve your credit utilization ratio which can help your score in the long run.

For example, if previously you had a total of $7,500 worth of credit available to you and you used $5,000 of this credit, your credit utilization ratio would be 67% ($5,000/$7,500).  But if the department store credit card added another $2,500 to the total amount of credit available to you and you still were only using $5,000 worth of credit a month your new ratio would be 50% ($5,000/$10,000).  Since you're now only using 50% of your available credit, this should help improve your credit score over time.  And since "amounts owed" constitute about 30% of your total credit score this is a good thing.

The take away here is that while getting that department store credit card might ding your score for a month or two, if you never use it your credit utilization ratio will improve, which will help your credit score over time – a good thing.  But if you do use it, it won't help your credit score because your ratio won't really improve much.

If you'd like to find out what your 3-bureau credit scores are now, consider signing up for Identity Guard TOTAL PROTECTION® credit monitoring.  Right now they are offering a free 30-day trial, and you'll get all 3 of your credit scores for free when you sign up.  You can cancel any time during the trial period and you'll get to keep your credit scores free of charge.  Identity Guard also updates your credit scores every 3 months so you'll know how they change over time.