Applying for Credit, Affects your Score!

Understand how applying for credit can hurt your credit score.

Almost everyone knows that making late payments is one mistake that can lower your credit score. However, many people do not realize that simply applying for credit can also lower your score. Knowing how and why this is possible can help you avoid making mistakes that could negatively affect your credit.

Every time you make an application for credit - at a bank for a loan, to open up a new credit card, or at a car dealership to get your interest rate - the business you are dealing with pulls your credit report. This is known as a credit inquiry, and is necessary for them to determine what interest rate you qualify for.

Each inquiry is recorded on your credit report, and can impact your score. This is especially true if there are many inquiries in a short period of time. The reason for this is that it looks as if you are desperate to obtain credit, which could signal upcoming financial trouble. The only time this would not be a problem is if it is obvious that all the inquiries are related to the same goal. For example, perhaps you are shopping around to see which dealership will give you the best rate on a car loan. On the other hand, if the inquires show that you are applying for 3 credit cards at the same time, there will certainly be a negative impact.

The important thing to remember is that you should only apply for credit when you really need it. Don't simply fill out every credit card application that is sent to you. By following this rule, you will keep inquiries on your report to a minimum and your score will stay higher.