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Is there a best way to go about applying for new credit to minimize the effect to a FICO® Score?


Applying for new credit only accounts for about 10% of a FICO® Score, so the impact is relatively modest. Exactly how much applying for new credit affects your score depends on your overall credit profile and what else is already in your credit reports. For example, applying for new credit can have a greater impact on your FICO® Scores if you only have a few accounts or a short credit history.

That said, there are definitely a few things to be aware of depending on the type of credit you are applying for. When you apply for credit, a credit check or “inquiry” can be requested to check your credit standing. Let’s take a look at the common inquiries you might find in your credit reports.

Credit Cards
If you only need a small amount, credit card companies will sometimes provide an increased credit limit (for accounts already opened). While a request for an increased limit may count as an inquiry just like opening a new card would, it won’t reduce the average age of your credit accounts, which is also important to your FICO® Scores.

If getting the limit raised on an existing card isn’t an option, then applying for the fewest number of credit cards will have the least negative impact to your FICO® Scores. For example, if a person needed an extra $5,000, getting one card with a $5,000 limit rather than two cards each with a $2,500 limit results in less impact to your scores. That’s because when applying for new credit cards, each application is counted separately as an individual inquiry in your credit file, and the more inquiries you have, the more that could hurt your FICO® Scores. Historically, people with six inquiries or more in their credit files are eight times more likely to declare bankruptcy than people with no inquiries in their files. So having more inquiries makes you look more risky to potential lenders.

Home, Auto, and Student Loans
FICO® Scores do not penalize people for rate shopping for a home, car or student loan. During rate shopping, multiple lenders may request your credit reports to check your credit. But FICO® Scores de-duplicate these and consider inquiries within a reasonable shopping period for an auto, student loan or mortgage each as a single inquiry. Doing the entire rate shopping and getting the loan within 45 days, will have no immediate impact to your FICO® Score.

Given rate shopping for home, auto and student loans has no immediate impact, why do you even see an inquiry in your credit files? While these types of inquiries may appear in your files, FICO® Scores count all those inquiries that fall in a typical shopping period as just one inquiry. So, again, doing rate shopping within a matter of weeks as opposed to a matter of months limits the longer-term impact to your scores as well.

This content is provided by FICO. © 2017 Fair Isaac Corporation. FICO is a registered trademark of Fair Isaac Corporation in the United States and other countries.