Thinking about applying for a new credit account, but worried the application might hurt your credit scores? Here’s what you need to know about how “new credit” factors into your credit scores, and whether or not it should stop you from applying for the credit you need.
How new credit affects your credit scores
There are two major credit scoring companies: FICO and VantageScore. Both companies consider new credit inquiries when calculating your credit score — and both of them put this factor towards the bottom of the list.
FICO gives “new credit” only 10 percent in credit score calculations, and VantageScore characterizes the factor as “less influential.” In VantageScore’s words, the company simply says not to “open too many new accounts too quickly.” (Although there is a difference between applying for credit and opening new credit — more on that later.)
In other words, this might not be a factor to worry too much about as you work to build or improve your credit. That said, there are things you can do to ensure that it doesn’t negatively affect your credit scores.
How to apply for new credit without hurting your credit scores
One reason someone might worry about new credit is that they’re nervous that too many credit inquiries can hurt their credit scores. For the average consumer, this might not be a necessary concern. Here’s how myFICO.com talks about credit inquiries:
“In general, credit inquiries have a small impact on one’s FICO Scores. For most people, one additional credit inquiry will take less than five points off their FICO Scores. For perspective, the full range for FICO Scores is 300-850. Inquiries can have a greater impact if you have few accounts or a short credit history.”
FICO’s consumer website goes on to remind readers that there are other more important factors to your FICO scores:
“While inquiries often can play a part in assessing risk, they play a minor part. Much more important factors for your scores are how timely you pay your bills and your overall debt burden as indicated on your credit report.”
If you’re still worried about this factor, however, a little strategy can go a long way. Consider the following:
- There’s a difference between hard credit inquiries and soft credit inquiries. Soft credit inquiries occur when you check your credit or are pre-approved for credit, and they have no impact on your credit score.
- If you apply for new credit strategically, you can show that you’re shopping for the best deal on new credit without taking multiple hits to your credit score. To do this, submit all your applications within 14 days if you can and consider these other tips to show you’re rate shopping.
Basically, if you’re in need of new credit, applying for credit is unlikely to have a significant impact on your credit score. Like all credit scoring factors, if you show responsible borrowing behavior, your scores should reflect that.
This article originally appeared on UpturnCredit.com and was syndicated by MediaFeed.org.
Featured Image Credit: DepositPhotos.com.
