FICO Scores: Does applying for credit affect it?
If your FICO Scores change, they probably won’t drop much. If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. This can affect your credit score.
1. Looking for new credit can equate with higher risk.
2. Most Credit Scores are not impacted by multiple inquiries from auto, mortgage, or student loan lenders.
3. These inquiries must be within a short period of time.
Typically, these are treated as a single inquiry and will have little impact on your credit scores. Here you will learn FICO Scoring Formula.
What is an “inquiry”?
When you apply for credit, you authorize those lenders to ask or “inquire” for a copy of your credit report from a credit bureau. When you later check your Credit Report, you may notice that their credit inquiries are listed. You may also see their inquiries listed by businesses you don’t know. But the only inquiries that count toward your FICO Scores are the ones that result from your applications for new credit.
Does applying for credit impact my FICO Score?
FICO research reveals opening multiple credit accounts in a short time frame represents higher credit risk. This can result in lower FICO Scores when credit reports show frequent new credit applications. This is distinct from rate shopping for a single loan, which has a different impact.
How much will credit inquiries affect my score?
The impact of applying for credit will vary from person to person based on their unique credit histories. 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 of FICO Scores is 300-850.
Inquiries can have a greater impact if you have few accounts or short credit history. Large numbers of inquiries also mean greater risk. People with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy.
This is compared to people with no inquiries on their reports.
While inquiries often can play a part in assessing risk, they play a minor part.
1. Much more important factors for your scores are how timely you pay your bills.
2. Your overall debt burden as indicated on your credit report is also essential.
Does the formula treat all credit inquiries the same?
1. No.
2. Research has indicated that FICO Scores are more predictive.
3. They treat loans that commonly involve rate-shopping, such as mortgage, auto, and student loans, differently.
For these types of loans, FICO Scores ignore inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won’t affect your scores while you are rate shopping. In addition, FICO Scores look at your credit report for rate-shopping inquiries older than 30 days.
If your FICO Scores find some, your scores will consider inquiries that fall in a typical shopping period as just one inquiry. For FICO Scores calculated from older versions of the scoring formula, this shopping period is any 14-day span. For FICO Scores calculated from the newest versions of the scoring formula, this shopping period is any 45-day span.
1. Each lender chooses which version of the FICO scoring formula it wants to use.
2. The credit reporting agency is responsible for calculating
What to know about “rate shopping.”
Are you looking for a mortgage, auto, or student loan? This may cause multiple lenders to request your credit report, even though you are only looking for one loan.
FICO Scores ignore mortgage, auto, and student loan inquiries made 30 days before scoring to compensate for this. So, if you find a loan within 30 days, the inquiries won’t affect your scores while you are rate shopping. In addition, FICO Scores look at your credit report for mortgage, auto, and student loan inquiries older than 30 days.
If your FICO Scores find some, your scores will consider inquiries that fall in a typical shopping period as just one inquiry. For FICO Scores calculated from older versions of the scoring formula, this shopping period is any 14-day span.
For FICO Scores calculated from the newest versions of the scoring formula, this shopping period is any 45-day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate its FICO Scores.
Improving your FICO Scores.
If you need a loan, rate shopping within a focused period of time, such as 30 days. FICO Scores distinguish between a search for a single loan and a search for many new credit lines. In part, this is determined by the length of time over which inquiries occur.
Generally, people with high FICO Scores consistently:
- Pay bills on time to show payment history.
- Keep balances low on credit cards and other revolving credit products.
- Keep a low credit utilization ratio.
- Apply for and open new credit accounts only as needed.
Also, here are some good credit management practices that can help to raise your FICO Scores over time.
- Re-establish your credit history if you have had problems. Opening new accounts responsibly and paying them on time will raise your FICO Scores over the long term.
Check your own credit reports regularly before applying for new credit to be sure they are accurate and up-to-date. You can order your credit reports through an organization authorized to provide credit reports to consumers, such as my FICO.
- Doing so will not affect your FICO Scores.
You can order your credit reports through an organization authorized to provide credit reports to consumers, such as myFICO.
Your own inquiries will not affect your FICO Scores if you do this.
Why BitX Funding
As a small business owner, it’s important to pay attention to your credit history and credit score. Applying for credit card applications, opening new credit accounts, and increasing credit limits can impact your credit utilization and in turn, your credit score.
However, with BitX Funding, you can apply for small business loans with peace of mind. Their marketplace connects you with the right lender, and they only perform soft inquiries, so your credit score won’t be negatively impacted. Additionally, paying bills on time and keeping your credit utilization low can improve your credit score over time.
Regularly checking your credit report can help maintain a healthy FICO score. Being mindful of the types of credit and time payments you have is also significant. BitX Funding makes it easy to find the right loan without sacrificing the health of your credit. Call now at 203-763-1430 ext 101 to talk with a loan specialist about your funding needs.
