How Are Credit Scores Calculated? Part 5 0f 6

New Credit / Recent Credit

New credit is not always a bad thing. Some borrowers may need to add new credit to help build a score, when buying a home. However, opening new accounts can hurt a credit score, particularly if you apply for a lot of credit in a short time and don’t have a long credit history. Credit scores factor in the following:

  1. How many accounts the consumer applied for recently,
  2. How many new accounts the consumer has opened,
  3. How much time has passed since the consumer applied for credit,
  4. How much time has passed since the consumer has opened an account

Scoring models look for “Rate Shopping”. Shopping for a mortgage or an auto loan may cause multiple lenders to request your credit report many times each, even though a person is only looking for one loan. Auto dealers are notorious for running 3 to 15 credit reports. This is known as shot gunning the credit. Fortunately, to compensate for this, the scoring models counts multiple inquires in a 14 day period as just 1 inquiry.

For most people, a credit inquiry will take less than 5 points off of their score. However, inquires can have a greater impact if you have few accounts or a short credit history. Large numbers of inquires also means greater risk. According to MyFICO.com, people with 6 inquires or more on their credit report are 8 times more likely to declare bankruptcy than people with no inquires on their report.

Part 6 of 6 To Follow Shortly

Do you have credit questions, Contact Bill Spragg at 281 804 3333, BSpragg@LcaNow.com or Harry Bradley at 713 419 7151, HBradley@LcaNow.com

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