When to Avoid Applying for a Credit Card

Christel Deskins

At 28 years old, Todd Baldwin is a self-made millennial millionaire thanks to his investment in real estate. But along with the six rental properties — worth over $4 million — that he currently pays mortgages on, Baldwin likes his plastic. Today, the avid credit card user has 15 cards in his name. […]

At 28 years old, Todd Baldwin is a self-made millennial millionaire thanks to his investment in real estate.

But along with the six rental properties — worth over $4 million — that he currently pays mortgages on, Baldwin likes his plastic. Today, the avid credit card user has 15 cards in his name.

Credit card sign-up offers come in handy for Baldwin when he knows he has a big expense coming up, such as furnishing one of his properties to list on Airbnb or making a repair on his car, a paid-off 2009 Ford Focus he shares with his wife. Since he is making the expense anyways, he figures he might as well earn some rewards for it.

Baldwin usually opens up a new credit card every six months, depending on what the perks are. “I look for new account bonuses, airline miles and cash back,” he tells CNBC Select. “I currently have enough miles to travel to and from Europe completely for free.”

Baldwin sticks to the recommended timeline to open new credit cards, which is roughly no more than every six months. But although he likes to take advantage of cards’ generous welcome bonuses, there is one scenario when he refuses to apply for new credit. His steadfast rule is to refrain from doing so while he is in the process of buying real estate because he knows it lowers his credit score.

How applying for new credit lowers your credit score

Because of the immediate impact on his 3-digit credit score, Baldwin doesn’t risk applying for credit within a few months before he is trying to get approved to buy a new property.

“If I think I’ll be applying for a new property in the next 90 days, I won’t apply for any new credit,” Baldwin says.

This guideline pertains to any type of borrower, not just credit card optimizers like Baldwin. Applying for new credit, whether it be a credit card or a car loan, temporarily dings your credit score a few points because it results as a “hard inquiry” on your credit report.

When a credit card issuer or lender pulls your credit report from one of the three main credit bureaus (Experian, Equifax or TransUnion) to see how credit worthy you are, this is called a hard inquiry (or “hard pull”). Regardless if you end up being approved or denied for the credit card or loan, you still have a hard inquiry listed on your credit report.

Fortunately, your score can bounce back in a few months if you use your card responsibly, like paying your balances on time and in full. And although hard inquiries remain on your credit report for two years, popular scoring model FICO only considers inquiries from the last 12 months when calculating your credit score, and they make up only 10% of a FICO score calculation.

The damage is also not much: According to FICO, one credit inquiry on most people’s credit reports will take less than five points off of their FICO score.

Learn more: The 5 reasons why your credit score might suddenly drop

Are hard inquiries OK to have?

CreditWise® from Capital One

CreditWise® from Capital One

Information about CreditWise has been collected independently by CNBC and has not been reviewed or provided by the company prior to publication.

  • Cost

  • Credit bureaus monitored

  • Credit scoring model used

  • Dark web scan

  • Identity insurance

Experian Free Credit Monitoring

Experian Free Credit Monitoring

On Experian’s secure site

  • Cost

  • Credit bureaus monitored

  • Credit scoring model used

  • Dark web scan

  • Identity insurance

FICO® Basic, Advanced and Premier

FICO® Basic, Advanced and Premier

Information about FICO® Basic, Advanced and Premier plans have been collected independently by CNBC and has not been reviewed or provided by the company prior to publication.

  • Cost

    $19.95 to $39.95 per month

  • Credit bureaus monitored

    Experian for Basic plan or Experian, Equifax and TransUnion for Advanced and Premier plans

  • Credit scoring model used

  • Dark web scan

    Yes, for Advanced and Premier plans

  • Identity insurance

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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