Lesson 5 of 5

When (and when not) to open new credit

Applying for new credit triggers a "hard inquiry," which typically drops your score a few points temporarily and stays on your report for two years, though its effect fades well before that. One or two inquiries aren't a big deal; several in a short window is a real signal to lenders that you might be increasingly reliant on credit, and it's treated that way. Good reasons to open new credit: a genuine need (financing a car, a mortgage), building credit history if you have little to none, or a rewards card for spending you already do, paid in full monthly. A less good reason: opening a store card for a one-time discount on a purchase you'd have made anyway -- the discount is usually smaller than the long-term cost of the inquiry and the temptation of a new available balance. If you're planning a major purchase that depends on your credit -- a mortgage especially -- avoid opening any new credit accounts in the 6-12 months beforehand. Lenders pull your report close to closing, and a new account or inquiry in that window can complicate or delay approval even if your overall credit is strong.