Will Opening a New Credit Card Hurt Your Credit Score?

My parents taught me to be careful with money and credit, and I've always had a good to excellent credit score as a result. I've also had the good fortune of not having my credit reports affected by any errors or fraud (knock on wood).

But I do have a habit that many people think is bad for your credit score: opening new credit card accounts. I typically open and close a few new accounts every year depending on what new credit card promotions are available and what types of rewards cards best fit my current spending patterns.

It's true that opening a new credit card account affects your credit.

For starters, it increases your total available credit, which has both good and bad effects.

The upside is that the smaller the percentage of your available credit that you actually use, the better it is for your score. Having more credit but keeping your monthly credit card purchases at the same level can thus raise your score slightly.

The downside is that if you're looking to make a major purchase, a recent increase in available credit can alarm lenders, who worry that you might overextend yourself and be unable to repay them.

Opening a new account also lowers the average age of all your accounts, which can have a slightly negative effect on your score. In general, the longer your credit history, the better.

Applying for a credit card results also in a lender checking your credit report. Whether you get approved or rejected for the new card, this "hard pull" has a slight lowering effect on your score.

Overall, opening new accounts is a relatively minor factor in your credit score--it only accounts for 10% of your score. Here's what you should be more concerned about:

-Payment history. Paying your creditors on time accounts for 35% of your credit score.

-Total debt. The less you owe compared to the amount of credit available to you (for credit cards) and compared to your original loan balance (for installment accounts), the better. Total debt accounts for 30% of your score.

-Credit history length. Longer is better, as long as you've been responsible. A short history is okay if you've made your payments on time. A nonexistent history can be a problem as creditors won't have anything to judge you on. Fifteen percent of your score is based on your credit history length.

-Credit scoring formulas also like to see that you have different types of credit, like a mortgage, auto loan, and credit card, but don't go out and open accounts you don't need to try to boost your score. Credit mixture only accounts for 10% of your score.

If you already have good to excellent credit and you aren't planning to take out any major loans, rent an apartment or apply for a job in the next six months, don't worry about the impact of opening a new credit card account on a credit score. Use your card carefully and enjoy the perks.