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How does a Credit Pull Impact my credit score

Will My Fico Score Drop If I apply for new Credit?

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. Looking for a new loan can equate with higher risk, but most Scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on your credit scores.

  • What is an “inquiry”?

When you apply for credit, 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. Looking for new loans can equate with higher risk, but most Scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on your credit scores.

  • Does applying for credit affect my FICO Scores?

FICO’s research shows that opening several accounts in a short period of time represents greater risk. When the information on your report indicates that you have been applying for multiple new accounts in a short period of time (as opposed to rate shopping for a single loan, which is handled differently as discussed below), your FICO Scores can be lower as a result.

  • How much will credit inquiries affect my score?

The impact from applying for credit will vary from person to person based on their unique histories. In general, inquiries have a small impact on one’s FICO Scores. For most people, one additional 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 history. Large numbers of inquiries also mean greater risk. Statistically, people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports. 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.

  • Does the formula treat all credit inquiries the same?

No. Research has indicated that FICO Scores are more predictive when they treat loans that commonly involve rate-shopping, such as mortgage, auto and student loans, in a different way. 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’re rate shopping. In addition, FICO Scores look on 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. Each lender chooses which version of the FICO scoring formula it wants the reporting agency to use to calculate your FICO Scores.

  • What to know about “rate shopping.”

Looking for a mortgage, auto or student loan may cause multiple lenders to request your credit report, even though you are only looking for one loan. To compensate for this, FICO Scores ignore mortgage, auto, and student loan 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’re rate shopping. In addition, FICO Scores look on 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 reporting agency to use to calculate your FICO Scores.

  • Improving your FICO Scores.

If you need a loan, do your 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 accounts, in part by the length of time over which inquiries occur.

Generally, people with high FICO Scores consistently:

 

*Pay bills on time.

 

*Keep balances low on cards and other revolving products. Ideally you want to keep your balance between 10 & 30% of the high limits.

 

*Apply for and open new credit accounts only as needed. Do not accept store cards to save 5% on your purchase. The impact on your score could be much more costly.

 

Also, here are some good management practices that can help to raise your FICO Scores over time.

 

* Re-establish your 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. As long as you 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 Score

 

it, you authorize those lenders to ask or “inquire” for a copy of your credit report from a bureau. When you later check your Credit Report, you may notice that their credit inquiries are listed. You may also see listed there inquiries by businesses that you don’t know. But the only inquiries that count toward your FICO Scores are the ones that result from your applications for new loans.

 

Source- Myfico.com
http://www.myfico.com/credit-education/credit-checks/credit-report-inquiries/
http://www.myfico.com/policy/terms-of-use/

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