Skip to content

3 ways a new credit card could increase your credit score

Jan. 21, 2023
6 min read
This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. Terms apply to the offers listed on this page. For an explanation of our Advertising Policy, visit this page.

You might be in the market for a new credit card for many reasons. Perhaps you want the opportunity to earn a new welcome bonus or valuable rewards from the everyday purchases you make. And some people seek a new credit card to achieve a "good" credit score.

If you’re applying for a credit card to improve your credit score, it’s important to understand how the new account might affect you.

There are several ways a new credit card could help your credit score, yet there are a few pitfalls to beware of as well. Otherwise, opening a credit card could set your credit score back — either temporarily or in the long term.

Let’s discuss three ways a well-managed credit card account has the potential to help your credit score.

Lowers your credit utilization rate

Perhaps the biggest benefit you might receive from a new credit card is the possibility of lowering your overall credit utilization ratio. Credit utilization is a term that describes the percentage of your credit card limits that are in use. Lower credit utilization is better for your credit score.

A new credit card comes with a new credit limit. The new account could trigger a drop in your credit utilization rate if you already have other open credit cards with outstanding balances. This, in turn, might improve your credit score.

Of course, the best way to lower credit utilization is to pay off your credit card balances. But if you can’t afford to zero out your credit cards, asking for a higher credit limit or opening a new credit card might help you in the short term. You could also consider using a balance transfer credit card as a way to consolidate outstanding credit card balances and reduce your credit utilization at the same time.

Establishes good payment history

MARTIN DM/GETTY IMAGES

Another way a new credit card might help your credit score is by allowing you to build good credit history. Payment history makes up 35% of your FICO score and 41% of your VantageScore credit score. Therefore, if you open a new credit card and always pay on time, the account can help you establish a strong payment history over time.

Additionally, if you only have a few accounts on your credit report, you might benefit from opening a new credit card. When you have a “thin” credit file — fewer than five credit accounts — you could have trouble qualifying for a mortgage, leasing an apartment or opening a mobile phone account.

Sign up for our daily newsletter

Related: Why paying off credit card balances is more important than ever

Diversifies your credit mix

A new credit card might help your credit score by adding account diversity to your credit report. Credit scoring models like FICO and VantageScore pay attention to many details on your credit report.

One of the factors these scoring models evaluate is the mixture of account types you have experience managing, also known as your credit mix. Credit mix is worth 10% of your FICO Score and 20% of your VantageScore.

There are two main categories of credit accounts — installment and revolving. Installment credit generally includes mortgages and auto, student and personal loans. Revolving credit includes credit cards and lines of credit. Having a mixture of these accounts on your credit report can increase your credit score.

Adding a credit card to your credit report might help your credit score if you’ve never had a credit card. However, if you already have other revolving credit cards appearing on your credit report, you probably shouldn’t expect any extra credit score bump in this area.

Credit score pitfalls to avoid when opening a new credit card

  • Late payments: Always pay on time. Late payments have the potential to destroy a good credit score. Plus, negative information like late payments can stay on your credit report for up to seven years.
  • High credit utilization: A high balance-to-limit ratio tends to be bad for your credit score. Plus, when you revolve an outstanding credit card balance from month to month, you’ll typically pay high interest charges as well. It’s best to pay your full statement balance every month.
  • Applying for too many accounts: You don’t have to be nervous to apply for a new credit card when you want to take advantage of an attractive offer. But an excessive number of inquiries in a 12-month period could damage your credit score.
  • Opening too many new accounts: When you open a new credit card, your average age of accounts becomes younger. This could trigger a credit score drop in the short term. And if you open too many new accounts at once, credit cards or otherwise, you might see a bigger negative score impact.
  • Closing old accounts: In general, it’s not a good idea to close old credit cards just because you open a new one. Closing an old credit card (especially an account with a zero balance) can increase your overall credit utilization rate and drop your credit score.
PORTRA/GETTY IMAGES

Bottom line

A new credit card often has the potential to help you improve your credit score when you open an account and use it responsibly. However, it’s critical to always pay on time. Plus, it’s best to pay off your full credit card balance every month as well.

Related: TPG’s 10 commandments of credit card rewards

You should also consider reviewing your three credit reports to see where your credit stands before you apply for a new account. Once you know where your credit stands, you’ll be better positioned to shop around for the best credit card for your situation.

Featured image by OSCAR WONG/GETTY IMAGES
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

Top offers from our partners

How we chose these cards

Our points-obsessed staff uses a plethora of credit cards on a daily basis. If anyone on our team wouldn’t recommend it to a friend or a family member, we wouldn’t recommend it on The Points Guy either. Our opinions are our own, and have not been reviewed, approved, or endorsed by our advertising partners.
See all best card offers

TPG featured card

Best for the well-traveled foodie
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review
Apply for American Express® Gold Card
at American Express's secure site

Rewards

3 - 4X points
4XEarn 4X Membership Rewards® Points at Restaurants, plus takeout and delivery in the U.S.
4XEarn 4X Membership Rewards® points at U.S. supermarkets (on up to $25,000 per calendar year in purchases, then 1X).
3XEarn 3X Membership Rewards® points on flights booked directly with airlines or on amextravel.com.

Intro offer

60,000 bonus points
Earn 60,000 Membership Rewards® points after you spend $4,000 on eligible purchases with your new Card within the first 6 months of Card Membership.

Annual Fee

$250

Recommended Credit

670-850
Excellent/Good
Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

Why We Chose It

There's a lot to love about the Amex Gold card. It's been a fan favorite during the pandemic because of its fantastic rewards rate on restaurants (that includes takeout and delivery in the U.S.!) and U.S. supermarkets. If you're hitting the skies soon, you'll also earn bonus points on travel. Paired with up to $120 in Uber Cash (for U.S. Uber rides or Uber Eats orders) and up to $120 in annual dining statement credits at eligible partners, there's no reason that the foodie shouldn't add this card to their wallet. Enrollment required.

Pros

  • 4x on dining at restaurants and U.S. supermarkets (on the first $25,000 in purchases per calendar year; then 1x)
  • 3x on flights booked directly with the airline or with Amex Travel
  • Welcome bonus of 60,000 points after spending $4,000 in the first six months

Cons

  • Weak on travel outside of flights and everyday spending bonus categories
  • Not as useful for those living outside the U.S.
  • Some may have trouble using Uber/food credits
  • Few travel perks and protections
  • Earn 60,000 Membership Rewards® points after you spend $4,000 on eligible purchases with your new Card within the first 6 months of Card Membership.
  • Earn 4X Membership Rewards® Points at Restaurants, plus takeout and delivery in the U.S., and earn 4X Membership Rewards® points at U.S. supermarkets (on up to $25,000 per calendar year in purchases, then 1X).
  • Earn 3X Membership Rewards® points on flights booked directly with airlines or on amextravel.com.
  • $120 Uber Cash on Gold: Add your Gold Card to your Uber account and each month automatically get $10 in Uber Cash for Uber Eats orders or Uber rides in the U.S., totaling up to $120 per year.
  • $120 Dining Credit: Satisfy your cravings and earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, Milk Bar and select Shake Shack locations. Enrollment required.
  • Choose the color that suits your style. Gold or Rose Gold.
  • No Foreign Transaction Fees.
  • Annual Fee is $250.
  • Terms Apply.
  • See Rates & Fees
Apply for American Express® Gold Card
at American Express's secure site
Terms & restrictions apply. See rates & fees
Best for the well-traveled foodie
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review

Rewards Rate

4XEarn 4X Membership Rewards® Points at Restaurants, plus takeout and delivery in the U.S.
4XEarn 4X Membership Rewards® points at U.S. supermarkets (on up to $25,000 per calendar year in purchases, then 1X).
3XEarn 3X Membership Rewards® points on flights booked directly with airlines or on amextravel.com.
  • Intro Offer
    Earn 60,000 Membership Rewards® points after you spend $4,000 on eligible purchases with your new Card within the first 6 months of Card Membership.

    60,000 bonus points
  • Annual Fee

    $250
  • Recommended Credit
    Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

    670-850
    Excellent/Good

Why We Chose It

There's a lot to love about the Amex Gold card. It's been a fan favorite during the pandemic because of its fantastic rewards rate on restaurants (that includes takeout and delivery in the U.S.!) and U.S. supermarkets. If you're hitting the skies soon, you'll also earn bonus points on travel. Paired with up to $120 in Uber Cash (for U.S. Uber rides or Uber Eats orders) and up to $120 in annual dining statement credits at eligible partners, there's no reason that the foodie shouldn't add this card to their wallet. Enrollment required.

Pros

  • 4x on dining at restaurants and U.S. supermarkets (on the first $25,000 in purchases per calendar year; then 1x)
  • 3x on flights booked directly with the airline or with Amex Travel
  • Welcome bonus of 60,000 points after spending $4,000 in the first six months

Cons

  • Weak on travel outside of flights and everyday spending bonus categories
  • Not as useful for those living outside the U.S.
  • Some may have trouble using Uber/food credits
  • Few travel perks and protections
  • Earn 60,000 Membership Rewards® points after you spend $4,000 on eligible purchases with your new Card within the first 6 months of Card Membership.
  • Earn 4X Membership Rewards® Points at Restaurants, plus takeout and delivery in the U.S., and earn 4X Membership Rewards® points at U.S. supermarkets (on up to $25,000 per calendar year in purchases, then 1X).
  • Earn 3X Membership Rewards® points on flights booked directly with airlines or on amextravel.com.
  • $120 Uber Cash on Gold: Add your Gold Card to your Uber account and each month automatically get $10 in Uber Cash for Uber Eats orders or Uber rides in the U.S., totaling up to $120 per year.
  • $120 Dining Credit: Satisfy your cravings and earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, Milk Bar and select Shake Shack locations. Enrollment required.
  • Choose the color that suits your style. Gold or Rose Gold.
  • No Foreign Transaction Fees.
  • Annual Fee is $250.
  • Terms Apply.
  • See Rates & Fees