The Kitchen Table

A question that we are frequently asked at LPI is, “If I apply for new credit will my credit score drop?”. Like most things associated with a FICO credit score, the answer isn’t exactly black and white. The impact from applying for credit will vary from person to person based on their unique credit history. But I want to share some general information to help you all be more informed about credit checks.

When you apply for credit, you authorize the lender to ask or “inquire” for a copy of your credit report. Having multiple inquires on your credit report can equate to higher risk. Statistically speaking, people with six inquires or more on their credit report can be up to eight times more likely to file bankruptcy than people with no inquires on their report. While inquires can play an important part in assessing credit risk, they only marginally impact your credit score.

If you are applying for several credit cards in a short period of time, multiple “inquiries” are going to appear on your credit report. These inquiries could lower your score by less than five points per inquiry. Credit inquiries like these differ from say, interest rate shopping for a single loan. Like when you are shopping for an automobile. For these types of loans, FICO ignores inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days that shopping around won’t drop your credit score.

Taken as a whole, inquires have a minimal effect on your credit score, whereas maxing out your credit card could drop your score by 10-45 points. Even worse is paying your bills late! That alone could drop your credit score by 75-110 points.

What is the moral of the story? Shop smarter! Only apply for credit that you need, and when you do see an inquiry on your credit report know that they only have a tiny effect on your credit score if any at all.

 

*Employees of LPI Loans and our affiliates are not attorneys and LPI Loans DOES NOT provide any legal advice and users of this web site should consult with their own attorney for legal advice .

Information for this article was obtained from: www.myfico.com