How Credit Card Applications Affect My Credit Score

Your FICO (Fair Isaacs) credit score is a three digit number that has a lot of power when it comes to getting approved for loans, credit cards and other lines of credit. The higher your credit score, the better; everyone knows that. But many consumers are confused about their credit score, or more specifically, how to keep their credit scores polished and looking good for potential lenders and creditors, as well as for would-be employers and landlords. A question that many folks often ask credit experts is how putting in applications for credit cards can affect their credit scores, if at all. And the truth may shock you. Your credit score is based, at least in part, on the number of credit inquiries that you place, including inquiries regarding taking out a credit card!

Hard Inquiries and Soft Inquires

When you apply for a credit card, your credit score is affected because the would-be creditor pulls what is known as a hard inquiry. This type of inquiry shows all of your credit information to your potential lender, and it requires that you give permission to the creditor to pull the report. Soft inquiries do not affect your score at all, because pulling a soft inquiry report is simply a method that companies use to verify who you are so that they can solicit you to buy things – or to take out credit with them. Creditors do not need your permission to do a soft inquiry. Examples of soft inquires include pulling your own credit report and score, or when an employer or property manager orders your credit report when interviewing you for a job or as part of the rental agreement process. Both hard and soft inquiries into your credit will remain on your credit report for two years.

Impact on Credit Score

Hard inquires affect your credit score, but there are many factors that are considered in determining how much the inquiry or application will impact your score. Multiple inquiries from creditors of the same time within a short frame of time will not affect your score as much as other types of inquiries. For instance, if you are shopping for mortgages, multiple inquiries would not affect your score if they are pulled within a thirty-day period. Unfortunately, shopping for credit cards does not have that same effect. Why does it matter anyway, you may be asking? Multiple inquiries within a short span of time makes creditors feel as if you are financially desperate, especially if you are being turned down again and again.

Reducing Inquiries

Not pursuing new lines of credit or credit cards is a surefire way to avoid the penalties of multiple inquiries on your credit report. After all, if you do not agree for the creditor to pull your credit report in the first place, then there will be no hard inquiries. As a general rule of thumb, inquiries and credit applications remain on your credit file and affect your score for two years. If you have an excessive number of inquiries that are truly affecting your ability to get credit, then waiting two years before applying can help improve your odds of approval.

Disputing Inquiries on Your Credit Report

It is always wise to review your credit report with Experian, Equifax, and Trans-Union, the three top credit bureaus for U.S. consumers, and look for erroneous information that might be damaging your credit score. You should check your credit report to make sure that you do not have any hard inquiries into your credit that you did not give permission for – and if you find a discrepancy, be sure to report it to the credit bureau in question. They are bound by law to investigate the matter, and if they have no proof that you inquired about credit, they must remove the notation from your file.

Updated: January, 15 2012