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What a New Application Means for Your Credit Score

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Any time you make an application that requires a credit check, an inquiry is added to your credit report. These inquiries are factored into your credit score for the next 12 months, which means each application has the potential to hurt your credit score for up to a year.

Inquiries vs. Other Credit Score Factors

Inquiries only make up a small percentage of your credit score - 10 percent to be exact, so you probably won’t lose hundreds of points just from a single inquiry. A few other factors weigh more heavily into your credit score and help buffer your score from damage from inquiries. Payment history is 35 percent of your score; amount of debt you’re carrying is 30 percent; length of credit history is 15 percent; and types of credit accounts is also 10 percent.

Each time you make new credit application, you could see your credit score drop a few points. One application may not cause your credit score to fall by much, if at all. Making additional applications, especially in a short period of time can cause you to lose enough points to be denied.

Applying for multiple credit cards and loans in a short period of time can make you seem risky. Lenders see that you may be taking on too much credit at one time or you’re in a situation where you’re serious financial situation and in need of credit. Neither of these paint you in the best light when it comes to applying for new credit

Shopping for Best Interest Rate

Don’t let the impact to your credit score keep you from shopping around for the best mortgage or auto loan rate. Credit scoring models are able to recognize consumers who make multiple credit applications because they’re rate shopping. As long as you keep these applications within a short period of time, they’re treated as one inquiry, no matter how many applications you put in. Credit card rate shopping is treated the same way. So be careful about applying for multiple credit cards.

Approved and Denied Credit Applications

Inquiries affect your credit score the same regardless of whether your application is approved or denied. Being approved affects your credit score in different ways. In some cases, a new account can cause your credit score to drop because your average credit age decreases and your debt level increases. In other cases, your credit score can improve, particularly if you open a new account with a large credit limit.

Inquires are automatically added to your credit report and factored into your credit score immediately after the business pulls your credit. If you’re signed up for a credit monitoring service that updates your credit score instantly, you’re able to see the impact of a new application right away. Checking to see how your credit responds to each application can be helpful when you’re planning to continue applying for new credit. This way you can gauge the likelihood that you’ll be approved and the terms you may be approved for.

It may be worth it to put off putting in new applications if you’re planning to apply for a major loan soon. Recent inquiries can make it harder to get approved, even if your credit score isn’t majorly affected by the application.

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Comments 1

Frank on Sunday, 25 November 2018 16:39

Every time I get approved for a new credit card or loan, I would say my credit score declines 40-50 points. It usually takes me 6-12 months to get those points back.

Every time I get approved for a new credit card or loan, I would say my credit score declines 40-50 points. It usually takes me 6-12 months to get those points back.
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Sunday, 16 December 2018