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:
- How many accounts the consumer applied for recently,
- How many new accounts the consumer has opened,
- How much time has passed since the consumer applied for credit,
- 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