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b"Our economy is fueled by the stuff we buy and sell\\u2014you know that\\u2014and it includes all kinds of transactions by individuals, by businesses, by governments, and, nowadays, most of these transactions don\\u2019t include cash. They either use credit or, increasingly, online services, such as Paypal or other mobile pay applications. Think about it: When was the last time you paid for something significant with cash?
So in our credit-based world, an individual's credit score is an all-important factor in making credit transactions affordable at low-interest rates. While we use credit or debit cards for routine transactions, big-ticket items, such as mortgages or car payments, require new lines of credit with lenders calling credit-rating agencies to check on your credit scores. But each time there's a \\u201chard\\u201d inquiry, your credit score takes a hit.
But how much of a hit do your scores really take\\u2014a bit, not too much? It\\u2019s typical for the score to drop 5 to 10 points after a hard credit inquiry. But there\\u2019s a bit more to it than that behind the scenes.
How Applying for Credit Can Effect You.
The hit isn't the same for everyone because your history with credit matters a lot. With hard inquiries, the change in your score depends on factors such as how long you\\u2019ve been using credit and whether your credit report includes any late payments, delinquencies, etc.
An inquiry\\u2019s effect on your credit score also depends on what you\\u2019re applying for. Many scoring models combine multiple credit inquiries and put things, such as mortgage, auto or student loan inquiries, together to allow consumers to shop around for the best rate, without worrying about how much each inquiry might ding their score. Depending on the scoring model, that \\u201crate shopping\\u201d period, in which multiple inquiries count as one, can vary between 14 to 45 days. This is new and very important. One of the great obstacles for shopping around was the negative impact it would have on your credit rating. The rating agencies got smart and did away with this restriction. Bravo for them!
Credit card applications have a different scoring model
Every time you apply for a credit card, you take points off your score, typically about five points or less for each credit card application.
It pays to do your homework and shop around.
Experts suggest that consumers shop around for credit to help minimize the damage that inquiries cause to your scores. But first, do your homework in terms of credit card applications. Doing your homework before you apply will give you an understanding of the qualifications different cards have ahead of time. This way you can, for instance, avoid applying for a card that requires a high score if your score is low and avoid the futility of getting a sure-shot rejection letter while also having the hard inquiry impact your score.
Be Strategic.
It\\u2019s a good idea to only apply for credit when you need it \\xa0and to time your credit card application so it's not when you have major purchases coming up that could be affected by recent inquiries on your credit report. For example, if there is any likelihood of your applying for a mortgage in the near\\xa0 future, don\\u2019t apply for new credit because you could lower your score and increase the interest rate on your loan. So hold off on applying for any new credit until after closing on the home. But don't overly sweat it because, on the bright side, the score tends to be somewhat forgiving of negative new account impacts, with any such harm tending to lessen after about six months of history.
Keep an Eye on Your Credit.
Immediately after applying for credit, your score may drop a bit, but, like I said, this dip isn\\u2019t permanent. So if you've kept credit balances low and have not missed making timely payments, your score should recover and even improve over time if you are a disciplined user of credit."