Thinking about applying for a new credit account, but worried the application might hurt your credit scores? Here are some things to consider about how “new credit” factors into your credit scores, and how that might impact your decision on whether or not to apply for credit you need.
How New Credit Affects Your Credit Scores
There are numerous consumer credit scores out there, but there are just two major credit scoring models used throughout the industry: FICO® and VantageScore®. Both of these scoring models consider new credit inquiries, which are what occur when you apply for new credit and are also called “hard credit inquiries,” when calculating your credit score. Here’s a look at where new credit falls in FICO® score calculations:
|FICO® Credit Score Factor||Percentage|
|Length of credit history||15%|
And this is where new credit falls under VantageScore® calculations:
|VantageScore® Credit Score Factor||Level of Influence|
|Payment history||Extremely Influential|
|Type of credit and duration of credit||Highly Influential|
|Credit utilization ratio||Highly Influential|
|Total debt||Moderately Influential|
|New credit inquiries||Less Influential|
|How much available credit you have||Less Influential|
As you can see, both FICO® and VantageScore® put new credit toward the bottom of their credit score calculations, with FICO® giving the factor 10 percent of the score and VantageScore® characterizing the factor as “less influential.” In VantageScore®’s words, it’s best 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 minimize any negative on your credit scores.
FREE TOOL: Are mistakes on your credit report hurting your credit scores? Find out here.
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.