Finance Globe

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Applying for Credit Cards Could Impact Your Score

If you know how credit scores are calculated, then you probably already know that applying for a credit card has the potential to impact to your credit score. But is the impact high enough to put off your credit card application for later?

Inquiries are placed on your credit report whenever you make a credit-based application. In other words, if a business checks your credit report to process your application, then a record of that inquiry is placed on your credit report. Inquiries are 10% of your FICO score. They remain on your credit report for up to 24 months, but only those made within the past 12 months affect your credit score.

Applying for one credit card probably won’t cause significant damage to your credit score, if it impacts your credit score at all. The exact amount of credit score loss you experience depends on the other information present on your credit report. An inquiry can hurt you more if you have a thin credit report without much other information present. Fortunately, myFICO.com says that one inquiry will probably take less than five points off most applicants’ credit score.

Keeping your applications to a minimum will lessen the damage your credit score receives from new credit inquiries. Applying for several credit cards, especially within a short period of time, makes you look risky and your credit score will reflect that risk. Specifically, myFICO says that people with six or more inquiries are much more likely to file bankruptcy than those without any inquiries.

Keep in mind that although the credit scoring calculation only considers inquiries made within the past 12 months, the creditor or lender checking your credit report will still see inquiries from the past 24 months. These inquiries can affect your credit card or loan approval even if they’re not negatively affecting your credit score.

If you apply for a credit card and you’re approved, you could notice a bigger impact to your credit score. The age of your credit history is 15% of your credit score. It considers both the age of your oldest account and the average age of all your accounts. Opening a new credit card lowers your average credit age and could cause a loss in credit score points, especially if you don’t have much other information on your credit report.

Should you delay your credit card application because of the potential impact to your credit score? It depends on how many other applications you’ve recently made and what you plan to use your credit for in the future. For example, if you’re planning to apply for a mortgage in the new few months, save the credit card application until later. But if you have no major loans planned and you haven't made many other credit card applications recently, you're probably good to go.

Note that rate-shopping is a little different than opening new credit accounts. The FICO score calculation has been programmed to recognize when you’re shopping for a good loan rate, for example, when you apply for a mortgage or car loan. While you’re shopping, the FICO score ignores those inquiries made within a specific timeframe. After you’re done shopping, the FICO score treats those inquiries as a single inquiry. The timeframe ranges from 14 days to 45 days depending the FICO score version that’s used.

Source: myFICO.com
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Sunday, 18 August 2019

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