Wednesday, August 14, 2013
Shopping for the right credit card is a smart decision, understand how shopping can affect your credit score with Todd Ossenfort.
Shopping for the right credit card is a smart decision, but understanding how shopping can affect your credit score is was a recent question Jerry asked.
Todd, do you know if FICO and the three major credit reporting bureaus have changed the rules for credit card shoppers? It’s frustrating when you shop for better interest rates and get them only to have them punish you on your credit score for shopping. Thank you. Jerry.
Punish may be a somewhat harsh word. A credit inquiry typically lowers your score by five points or less. In addition, credit inquiries stay on your credit report for 24 months but are only calculated into your score for 12 months.
Todd Ossenfort on What FICO takes into account during comparison shopping
Fair Isaac and Company or FICO DOES take into account that comparison shopping is a smart thing for consumers to do when obtaining credit for a car loan, mortgage or a credit card with better terms. As a result, credit inquiries are not included in your credit score for the first thirty days from the date of inquiry. So, as long as you secure the credit for which you are shopping within thirty days, none of the inquiries will affect your credit score for that particular loan.
Once the 30 days has expired the FICO scoring model includes all inquiries for the same type loan within that 30-day period as one inquiry, not multiple inquiries. For example, if you decide to go shopping for a new car and visit 4 different dealerships and you allow all of the dealerships to pull your credit report your score will only be reduced by 5 points not 20 Besides, the inquiries are not included after 12 months. Will you really need more new credit or another new car within a year?
Some lenders may check your score using the three major credit bureaus scoring model – VantageScore that was launched in March of 2006. You have less time to shop with VantageScore than you do with FICO. VantageScore will consider all inquiries for the same credit within a 14-day period as one inquiry. Just as with FICO, VantageScore will not lower your score much for the inquiry.
Credit Card inquiries are included in the scoring model:
Credit inquiries are included in the new credit portion of the scoring model for both FICO and VantageScore. Each scoring model weights new credit as 10 percent of your total score. Credit inquiries are just one item considered in the new credit category. Recently opened credit accounts are also included when calculating this portion of your score.
To keep newly opened accounts and new credit inquiries from causing a noticeable negative impact on your score keep these things in mind:
- When opening new credit card accounts be aware of the credit limit as well as the credit limits on your existing credit cards. You don’t want to have access to more credit than your income warrants.
- Make sure you are serious about obtaining a new credit line before you allow someone to make a inquiry into your credit file.
- If possible, don’t secure both a mortgage loan and a car loan in the same year.
Take care of your credit!