Innovations and Payment Systems

Credit inquiries and your credit score

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The Credit Guy, Todd Ossenfort
The Credit Guy, Todd Ossenfort, is a credit expert and answers readers’ questions about credit, counseling and debt issues.

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Question for the expert

Dear Credit Guy,
Do you know if FICO and the three major credit reporting bureaus have changed the rules for credit card shoppers? It’s frustrating when you shop for better interest rates and get them only to have them punish you on your credit score for shopping.
Thank you.– Jerry

Answer for the expert

Dear Jerry,
Punish may be a somewhat harsh word. A credit inquiry typically lowers your score by five points or less. In addition, credit inquiries stay on your credit report for 24 months, but are only calculated into your score for 12 months.

Fair Isaac Corp. (FICO) does take into account that comparison shopping is a smart thing for consumers to do when obtaining credit for a car loan, mortgage or a credit card with better terms. As a result, credit inquiries are not included in your credit score for the first 30 days from the date of inquiry. So, as long as you secure the credit for which you are shopping within 30 days, none of the inquiries will affect your credit score for that particular loan.

Once the 30 days has expired, the FICO scoring model includes all inquiries for the same type loan within that 30-day period as one inquiry, not multiple inquiries. For example, if you decide to go shopping for a new car and visit four different dealerships and you allow all of the dealerships to pull your credit report, your score will only be reduced by five points not 20. Besides, the inquiries are not included after 12 months. Will you really need more new credit or another new car within a year?

Your keys to getting into the 700-plus credit score club

Having a solid credit history with a credit score over 700 will open doors to money-saving opportunities — from low-interest mortgages and loans to lower APR credit cards, better insurance rates and even jobs. Here are a slew of tips that can help get you and keep you in the get and keep a great credit score.

Some lenders may check your score using the three major credit bureaus scoring model — the VantageScore that was launched in March of 2006. You have less time to shop with VantageScore than you do with FICO. VantageScore will consider all inquiries for the same credit within a 14-day period as one inquiry. Just as with FICO, VantageScore will not lower your score much for the inquiry.

Credit inquiries are included in the new credit portion of the scoring model for both FICO and VantageScore. Each scoring model weights new credit as 10 percent of your total score. Credit inquiries are just one item considered in the new credit category. Recently opened credit accounts are also included when calculating this portion of your score.

To keep newly opened accounts and new credit inquiries from causing a noticeable negative impact on your score, keep these things in mind:

•  When opening new credit card accounts, be aware of the credit limit as well as the credit limits on your existing credit cards. You don’t want to have access to more credit than your income warrants.
•  Make sure you are serious about obtaining a new credit line before you allow someone to make an inquiry into your credit file.
•  If possible, don’t secure both a mortgage loan and a car loan in the same year.

Take care of your credit!

Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.

The Credit Guy answers a question about a debt or credit issue from a reader each week.
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