Every Credit Card application negatively affects your Credit Score

Your FICO credit score is negatively affected every single time when you fill and send a credit card application, or any other application which requires credit approval.

The thing is easy. More often you are looking for a credit – more risk you represent to the lenders.

I have figured it out recently when decided to check my credit score at Equifax. One of the items which negatively affects my FICO credit score reported by the system is:

The time since you last applied for credit (as reflected by an inquiry on your credit report) is too recent

It has been also explained in details by Equifax:

Research shows that consumers who are seeking new credit accounts are riskier than consumers who are not seeking credit. Inquiries are the only information lenders have that indicates a consumer is actively seeking credit. There are different types of inquiries that reside on your credit bureau report. The score only considers those inquiries that were posted as a result of you applying for credit. Other types of inquiries, such as account review inquiries (where a lender with whom you have an account has received your credit report) or consumer disclosure inquiries (where you have requested a copy of your own report) are not considered by the score. The scores can identify “rate shopping” so that one credit search involving multiple inquiries is usually only counted as a single inquiry. The FICO score evaluates not only the presence of inquiries, but also how recently the latest inquiry occurred. In general, the more recent the inquiry, the greater the risk.

As time passes the age of your most recent inquiry will increase and your score will rise as a result, provided you do not apply for additional credit in the meantime.

The first credit card is definitely necessary to start building your credit history. It actually increases your credit score when you start using it and paying money back on schedule. But when you already have established credit history and good credit score, every credit application will reduce your credit score. It does not have to be a big line of credit, it can be just a simple credit card with small credit limit which gives you some points in some store, like Walmart MasterCard, or Sears Card, or Peoples Card, etc. Sometimes you can be pushed to apply for some credit card, or discount card in order to get one-time discount on your current purchase.

Carefully read terms and conditions at the bottom of the application!

It can easily state that you “allow the company to inquire credit bureaus about your credit information, i.e. obtain a credit report on your name”. Think about it twice! If you really care about your credit score and you will have to use it in the nearest future to apply for a credit you really need, for example, mortgage, you may get higher rate on it if you apply for the credit card now which you don’t really need. You can save twenty bucks now with your new credit card, but will have to spend thousands of dollars more on the interest with higher rate in the future. Think about it, and apply for a credit only when you really need it.

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