How applying for credit cards affects your credit score
Each time you apply for credit, whether it's for a new credit card, a mortgage, or a car loan, a lender asks to see your credit history, which is noted as an "inquiry" on your credit report.
Too many inquiries can hurt your credit score, although many inquiries are harmless. Here's a look at the different types of credit report inquiries and their affect on your credit score.
• Inquiries with no impact on credit score
Inquiries are made anytime your credit report is pulled, and sometimes this happens without you applying for credit. Potential employers might check your credit reports, credit card companies marketing pre-approved credit card offers review your credit history, and you might ask to see your credit reports. Under federal law, you can get a free copy of your credit report from each of the three major bureaus (Experian, Equifax and TransUnion) once a year through AnnualCreditReport.com.
Don't worry too much about the effect of these inquiries. Creditors don't see them, and they aren't used to calculate your credit score.
• Too many credit report inquiries
Inquiries sparked by your credit applications are factored into your credit score. Creditors are interested in the number of times you seek more credit because too many instances in a short time could indicate you're having financial difficulty. What's too many? That's tough to say, but if your credit is decent, inquiries should have a fairly small impact on your credit score. Other factors, such as whether you've paid your bills on time, are far more important. Experian, one of the three major credit reporting bureaus, says the number of inquiries is rarely the only reason for a poor credit score. Inquiries generally become more important when other issues are bogging you down, such as missing payments or too much credit card debt.
• Multiple credit card offers: Shopping around won't hurt you
When you're shopping for a mortgage, you might apply to several lenders, and they each pull your credit reports. But don't worry. These multiple inquiries should not hurt your credit score. Most new credit scoring models recognize when you're shopping for the best rates, so during a limited timeframe, they'll count multiple inquiries as only one or ignore them altogether.
If you think you've been applying for too many credit cards and other loans, your concern should extend beyond the impact on your credit score. It's time to take a hard look at your finances. Get help from a reputable credit counselor to help you design a workable financial plan and avoid getting further into credit card debt.
Published 11/19/12 (Modified 11/20/13)