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Don't fear credit score drop when applying for new card

By

Credit Score Report
Reporter Jeremy M. Simon
Jeremy M. Simon is a former staff reporter for CreditCards.com who covered credit reporting and scoring issues.

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Question for the CreditCards.com expert

Dear Credit Score Report,
I have a credit score of 750. If I apply for a credit card, how many points roughly could my credit score drop? Cheers. -- Joe

Answer for the CreditCards.com expert

Hey Joe,
Applying for a new card may trim a few points from your robust credit score, but such a decline is unlikely to have a large or long-lasting impact on your borrowing.

There are lots of credit scores available to borrowers. Your inquiry doesn't specify whic credit scoring model awarded you that 750, but since the FICO score is most often used in the United States, I'm guessing that's the score you saw. FICO scores ranges from 300 to 850; the higher the score, the more likely it is you'll repay loans, in FICO's view. Applying for a new credit card may cause your FICO score to fall to account for the possibility you are taking on more debt than you can handle. Typically, however, the drop is small and the consumer's score soon recovers.

Based on your credit score alone, I can't give you an exact number of points you'll lose -- but neither can FICO.  When a new account gets opened, the points shaved off a consumer's FICO score "tends to vary according to other pieces of information on the credit report, such as payment history, the length of time the person has been using credit and the number of recently opened accounts," says Barry Paperno, consumer operations manager at myFICO.com. We can, however, come up with a rough estimate: According to FICO's website, for most borrowers, one additional credit application will result in a loss of fewer than five points.

So what does a loss of that size mean to a borrower with a FICO score of 750? Not much. Even if you lose five points, your credit score will remain within a range that allows you to qualify for the best rates on a 36-month auto loan and a 15-month home equity loan, as well as nearly the best rates on 30-year fixed mortgage, data on myFICO.com shows.  

Meanwhile, your score should experience a speedy recovery. While the new credit inquiry will appear on your credit report for two years, "its impact in terms of scores diminishes within a matter of a few months," says Rod Griffin, director of public education with credit bureau Experian. You can help the process along. "To ensure the quickest possible recovery of any points lost due to the opening of a new account, the best advice is to make all payments on time, keep account balances low and avoid opening any additional new accounts," Paperno says.

But with a score of 750, I'm sure you already know about responsible borrowing.

Good luck!

--Jeremy 

 See related: 'Hard' inquiries have limited credit score impact

Jeremy M. Simon is a former CreditCards.com reporter who wrote about credit scoring, economic data, credit card crime and other issues. He is based in Austin, Texas. He is a graduate of Vassar College and has previously worked for Thomson Financial in New York City, where he wrote about the stock markets, and Texas Monthly, as well as several publications in Austin.

Published: March 15, 2011



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