Does Obtaining Credit Cards Negatively Impact Your Credit?
We all take out some form of credit once in a while. It can be challenging to live without credit cards or lending options at all.
However, it is necessary to admit that many consumers are scared their credit scores might get damaged if they apply for a new credit card. Is it true?
While a single application won't seriously affect your score and will temporarily lower it just by a few points, numerous applications may have a longer effect and be much riskier for the borrower. Here is what you need to consider.
What You Should Do Before You Apply for a Credit Card
It can be annoying to get a lower rating just because you applied for new credit. This is especially stressful for people who are willing to establish their credit score or build it from scratch.
If you are a responsible borrower and make on-time payments, you won't have trouble with your credit. Applying for a single credit card won't ruin your score.
When you search for a 200 dollar loan and submit multiple requests, your score may lower. Instead, you should space out lending requests, follow your needs, and research for the most affordable card or loan before you submit your application.
Applying for numerous cards won't be beneficial for your credit history.
Consider these factors before you apply:
How to Receive Your Free Annual Credit Report
According to the Federal Trade Commission, it's important to order your free annual credit report to have accurate and updated information and make adjustments or fix the errors if necessary.
You have a chance to order a credit report from any of the three nationwide credit reporting agencies with the help of a toll-free phone number, website, or mailing address.
There is no need to contact each of the credit agencies separately. You may order a free annual credit report if you:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281
There is just one web platform that is authorized to fill orders for getting a free credit report under federal law.
Every 12 months you can request a free copy to ensure there isn't identity theft and to check all the data is complete and accurate.
What does my credit report include? It comprises 35% of your payment history, 30% of amounts owed, 15% credit history, 10% of new credit, and 10% of types of credit. Bankruptcies and liens will also be visible on your report.
The major credit reporting bureaus sell this data to recruiters, insurers, and lending companies.
Each consumer is entitled to a free annual copy of their credit report under federal law. If your loan request is rejected, you can get a report stating the reason for denial.
Types of Credit Pulls on a Credit Report
When you apply for new credit, you may undergo a "hard" or a "soft" inquiry. A hard inquiry or a hard credit check is conducted when a person applies for a new loan or a credit card.
This inquiry will remain on your credit report for up to two years and may lower your rating for the next six months.
Soft credit pulls are initiated by other companies including lenders who perform reviews of the client's current credit accounts or institutions that make promotional offers of borrowing options.
When a person orders an annual credit report, it also becomes a soft inquiry. Hence, you should be careful with hard credit pulls as they may lower your rating while soft credit checks are harmless.
Can Applying for a New Credit Card Affect Your Credit?
When a person wants to obtain a new credit card, it's wise to know what effect it may have on their credit.
You should learn that the credit card provider will review your credit report in advance and decide whether it wants to approve your request depending on your payment history and current credit score.
It is possible to notice a small drop in your rating right after a hard pull was conducted when the service provider requested your credit report.
Each inquiry might lower your rating by a different number of points. It depends on your recent credit activity and your credit history in general.
Those with a stable and great credit history won't see the major impact of applying for a loan or a new credit card.
Besides, this impact will fade soon when the new billing cycle will come into place but the credit inquiry will most likely remain on your credit report for two years.
The most popular FICO scoring model claims that it will eliminate the credit pull after 12 months. There is a common concern that a credit pull is a reason for rejection.
This is false as only a hard inquiry may hurt your score especially if it's too low in the first place.
The Bottom Line
Your credit score is one of the most important criteria that shows your creditworthiness to lenders. It demonstrated how likely you would be able to return the debt to the crediting company.
Those who have a history of late payments may notice a big dent in their rating while borrowers making regular payments will usually have good credit.
If you order your annual credit report, this inquiry is called soft and won't affect your rating.
Applying for multiple lending options and credit cards may potentially damage your score.