Why did my credit score drop when I added a gold card?

Over the past couple years I’ve added 5 credit cards to my credit profile. The 4th card I added was an Amex gold card.

I walked away from credit for 7 years. So I started off with 0. Those cards I added are my only cards so I have 5 total.

I’m very careful every time I add a card. I do the math to make sure I don’t cross over any age metric thresholds, etc. so, Every single time I’ve added a card it’s either increased my score. Or barely affected it. Except for the gold card.

For whatever reason when I added the gold card my scores dropped 78 points. It’s been over a year since then and they haven’t recovered.

You just entered a different phase of your credit file. When your file was thin because you had no credit card then you added a couple of cards, the good things your were doing overwhelmed the bad things your were doing. Every month paying the balance and not rolling over a balance helped your score. The age of the accounts was growing and helping your score.

But remember applying for credit hurts your score. It is the hard pull that does it. That hard pull for the 4th card may have triggered something in the score algorithm. Recovery from the dip now takes longer because your file is no longer thin. Adding the 5th card didn't help, because there was another hard pull.

Also every month your charge card has a balance the fact there is a balance is reported. That can impact your score. It doesn't impact your utilization directly. But it does do so indirectly. If your charge card balance is small you are missing out factoring that small balance into the utilization number. That eliminates the sort of activity that helps a score recover from a hard pull.

Adding a card means that more of your allowable credit may be tapped at any moment. This does make you a bit more of a credit risk, hence your score drops a bit. It may recover after they see how you actually use the additional card.

Unless you are trying to open a new loan, or perhaps rent an apartment in places where credit checks are permitted, your credit rating really doesn't matter much once it gets above a "reasonable" number. A drop of 78 points may not be significant if it's a relatively small percentage of the total.

I'm not going to ask why you think you need all those cards. I am going to suggest that you think very hard about that question yourself.

Note that your credit score will probably recover after you have demonstrated that you can manage the additional card. That will take time. Opening a new card when you are starting a house hunt was probably a strategic mistake, but it's done now.

One weird possibility. A few years ago, the credit agencies started using "alternative scoring" for folks with thin credit files, only until they had enough credit information to build a full profile off of without relying on alternative scoring metrics (at which point the alternative metrics are deemphasized or ignored entirely).

Examples of things not traditionally included in a credit score that an alternative scoring metric might use include:

• Income sources and stability - Read: Are you getting a regular paycheck, vs. varied amounts that might indicate unpredictable seasonal or gig work?

• Spending patterns/financial behavior - Super varied, but they're looking at how you spend, where you spend, etc. They know way more about your spending behavior than you might think even if you aren't using credit cards. They may know your utility bill payments, rent payments, etc., even when those aren't strictly debt payments.

• Savings/liquidity - More cash or cash-like assets means it's easier to cover unexpected expenses.

And it gets weirder from there; from your smartphone alone, they can base it on which apps you have installed on your phone, the location info from your phone (a non-trivial number of apps sell that info if you leave location on and grant the necessary permissions), or on behavioral information stores collect and sell by tracking the Bluetooth ID of your phone (Which product did you stop at for more than 30 seconds? Did you end up buying it?).

As you develop more credit history, they tend to phase out the importance of alternative credit scoring in favor of the traditional metrics. So what could have happened here is:

1. You had great alternative credit metrics; you paid all your bills (utilities, rent, etc.) on time, you earned a regular paycheck exceeding your expenses, you have a large bank account balance, you shopped at stores frequented by the creditworthy rather than the poor, whatever.

2. Your traditional credit metrics are poor for whatever reason. The current FICO mixture is:

   • Payment history (35%) - Assuming you haven't missed any payments, you're probably fine here, but the short history might mean you don't have a perfect score.
   • Amounts owed (30%) - You're not clear on what your current credit utilization is, but this one is easy to be slightly sub-optimal on.
   • Length of credit history (15%) - You've got very little history, so you probably get very little from this.
   • Credit mix (10%) - Your credit is solely from credit and charge cards, so this is likely abysmal.
   • New credit (10%) - You opened five new cards in two years, again, this is likely abysmal. (As littleadv points out, a 5:2 ratio of new credit to number of years is a threshold for some organizations like Chase)

   So while you probably have decent scores in the two biggest components, the other three components, totaling 35% of your score, vary from poor to awful. Luckily, before your history was sufficiently fleshed out, they ignored/down-weighted that in favor of your non-traditional metrics.

3. When you opened the fifth card, that filled in your traditional credit history enough that they dramatically reduced/eliminated the alternative credit metrics in your profile, and increased the importance of the traditional metrics.

Voila, it turns out you look great on paper without a credit history, but once you have a history, it looks substantially worse than what they were expecting based off their stopgap metrics. You're in a credit (re)building phase now, you need to wait for the hard pulls to age off, reconsider how much available credit you have, how high your utilization is going, getting a more varied mix of credit (10% of the score is credit mix, and you have nothing but credit cards), etc.

It's not great, but assuming none of the problems mentioned in the other answers affect you, it's a matter of time building the safer looking traditional credit profile. Getting new non-credit-card credit with regular payments (e.g. car loan, mortgage, student loan) may end up costing you a fraction of a percent more on the interest rate, but high 600s is usually still considered a safe enough risk to lend to in the first place, and in a stroke of irony, after the hard pull from getting that new debt wears off, the improved credit mixture and regular steady payments will likely bring your credit back up to, and above, where it was. It's just kind of unpleasant for you right now.

A 78 point drop would worry me. You should 100% investigate why it happened.

I've had 10-15 active credit cards in the past and a new card never impacted me more than 5-10 points I think.

Note: I sign up for the intro cashback bonus and am too lazy to close them; I carry just a single primary CC. I'm down to 7 after a recent cleanse.

I would highly recommend signing up for something like Credit Karma because they try to show you why your score rose or dropped.

I don't want to jump to conclusions but I hope you're not a victim of a recent identity theft.

Do you have any new non-CC loans like a car loan or maybe you co-signed for someone and they stopped making payments?

Re: Also I’m looking to get a house. Hence why I’m asking

Are you going through a mortgage approval process right now. If so then I think those hard inquiries have greater impact than CC inquiries.

My final theory is that if you've been approved for a loan then you are immediately pegged at 100% utilization of that loan so a 78 point drop isn't unexpected.