Avoid credit card application risks


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Put down that credit card application

Everyone knows that missing payments or carrying too much debt can hurt your credit score, but did you know that it’s a mistake to fill out one too many credit card applications? Every time your credit is reviewed, whether by a bank, credit card company or an employer, it is marked on your credit report as an “inquiry.” Too many inquiries can affect your credit score.

There are 2 kinds of inquiries: hard and soft. A soft inquiry can be the result of many things. When you apply for a job, your potential employer may check your credit report. A credit card company with which you already do business with might periodically check to decide if it wants to increase or decrease your credit limit. These types of checks are soft inquiries, and they have no adverse effect on your credit score. Potential lenders won’t even see such soft inquiries recorded on your report.

Avoid too many ‘hard’ inquiries

Hard inquiries, on the other hand, come about as the result of actions you take. If you fill out a credit card application or apply for a car loan or home equity loan, an inquiry is recorded. A hard inquiry can make up as much as 10% of your credit score. Even if you’ve never missed a payment in your life and keep your debt low, a long list of hard inquiries can be enough to ruin even a great score.

There are 2 things to do if you want to keep a credit card application from affecting your credit. If you know you’re about to apply for a large loan, like a mortgage, plan ahead. Most credit scoring models consolidate inquiries for major installment loans within a specified time range — usually 45-day clusters — to allow for comparison shopping.

Take advantage of that window. Plus, minimize applying for other types of credit in the months beforehand. The 2nd thing to remember is to shop around for new cards only when you really need the credit.