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New Credit Card Costs ±14 FICO Points

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New Credit Applications!We recently purchased a Fujitsu ScanSnap S300 and have been scanning a lot of our documents to reduce the number of documents we retain. One of the documents we came upon were two printouts of my wife’s FICO credit score and credit reports from Equifax, through myFICO. Earlier this year she signed up for the trial to see what her score was and in between the two inquiries she applied for a credit card.

The first report was pulled in mid-March and she had a glowing score of 804. The second report was pulled a month later and her score was 790, still very strong.

The only difference? She applied for and was approved for a new credit card. It cost her fourteen FICO points.

myFICO Report & Score

The first part of myFICO’s report will list the good, the bad, and the ugly parts of your report in summary format. Items that are hurting your score or helping your score are highlighted, giving you a good indication of what you might want to do (or avoid) to improve your score. In the first report, there were no red (bad) items. With a score of 804, I’m not surprised there weren’t any red items. In the second report, there was only one – her score was hurt by the hard inquiry for the credit card and a fairly new line of credit with the approved credit card.

14 Points

Fourteen points isn’t a lot when you start at 804 but, if myFICO’s credit score tables, it could make a difference if you’re at the range boundaries. If you have a score of 765 and looking for a new home loan or refinance, fourteen points is huge. I would argue that you should not be applying for credit for a full year before you plan on getting a loan and certainly avoiding inquiries and new accounts within six months.

What Gets Affected?

When a new line of credit is added, it affects a bunch of the publicly available metrics that factor into your credit score:

  • Hard inquiry: When a lender pulls your credit to make a lending decision, it’s called a hard inquiry and that negatively affects your score. When you apply for a credit card, the company will initiate a hard inquiry.
  • Average account age: Your new credit card will have an age of 0 years, 0 months; which will lower the average age of your accounts and negatively affect your score.
  • Credit utilization: This is the percentage of your total credit that you are currently using, the lower this is the better. When you add a new account, you will increase the total credit you have and lower the percentage you are using (assuming you don’t immediately charge to the card).

There are many factors that go into your score, but the order of magnitude of their cumulative effects on your score seems to at that level. If you were to apply for a new account, you probably won’t get dinged exactly fourteen points but it’ll be in that general area. I wouldn’t expect a fall of a hundred points.

If you have personal data like this, please share in the comments (anonymously if you prefer). I’m curious to know how if this order of magnitude is in fact correct or if we’re simply drawing too many conclusions from a data set of one.

(Photo: rubenerd)

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16 Responses to “New Credit Card Costs ±14 FICO Points”

  1. Chris says:

    I wonder how often they change their grading/scoring ruberics. For instance, lets say absolutely nothing changes in one’s report, will their score stay the same?

  2. Thanks for analyzing this info. It does make a huge difference in your interest rates. I know from my 25 years in the automobile business.

    John DeFlumeri Jr

  3. MichaelM says:

    Given that credit utilization is a FICO factor, then a larger credit limit could maybe help mitigate the 14 point drop (or maybe it mitigated a 20 point drop in your wife’s case!).

    I just applied for a new Credit Card, to replace one from a credit union in a city I moved away from. I consciously decided to apply for the new card before closing my old card so that decreased credit utilization wouldn’t negatively affect my chances of getting a new card.

  4. lostAnnfound says:

    I opened a new Visa to replace a gas charge card, but this was just done this month, so nothing has changed as of it.

    However, this summer American Express closed an account that I had not used in some time & my score (through Credit Karma) dropped from 794 to 770. My actual FICO before that was 798, so Credit Karma was in line with that, although I did not get a report this quarter from one of the big three yet. This is credit utilization opposite of what you wrote about…an account was closed and my total credit utilization percentage then went up.

  5. Kira says:

    I was very anal about my credit score before applying for a new mortgage on our new house this last Spring. I personally kept open a large limit credit card with a zero balance at a bank I hated (Citi). After the house closed, I closed the card too (it was my oldest card). My score took a HUGE hit in terms of credit utilization and age, but at that point it didn’t matter to me anymore.

  6. Izalot says:

    I agree 14 points is huge! Imagine if she opened up multiple credit cards, would the effect be a sum effect or do you hit a plateau? I would be curious to see how long her score would stay that way or does it peak right back up again.

  7. Jim: You need to check out the credit score simulator on myFico.com. Based on my experience I learned that you score is based on the data as of the date it is pulled. Your score is also affected by current debt/credit ratio.

    We pay all cards off at the end of the month. At the moment I pulled by report we had $5386 in charges (I travel routinely) and I had a score of 785.

    If this was all paid off at the moment my score would not have been different. But if I had paid off only 90-95% the simulator predicted a higher potential score.

    Turns out they want to see some debt, just very little.

    Could have been that the day one of your wife’s reports was pulled had more or less current charges than the other in addition to a new card and reduced average history.

  8. aua868s says:

    14 points/credit card is scary! luckily i am applying for a loan for the next 5 years or so.

  9. Alex says:

    I often receive letters from the bank saying that I have the option to increase my credit card limit.

    Buyer beware, they are not doing me any favours. If I want to make a large purchase on my credit card, I simply add more funds to my credit card account a few days earlier. That way when I use my card the purchase is already paid off and I don’t get hit with any interest charges.

    This is one huge benefit of internet banking.

  10. Shirley says:

    I am still getting mail offers on a credit card that I instructed to be closed 2 years ago. This is with Chase and I haven’t used it for about 4 years. Should I just leave the situation as is, rather than contact them again, to save my credit score?

  11. zapeta says:

    Well, I think that this just follows common advice…if you’re planning to apply for a loan or something where your score is going to be very important, don’t apply for any new credit cards for a year prior to that.

  12. The Other Schmitty says:

    My guess is that you lost 14 points because you were so close to perfect. I think the amount of reduction would decrease exponentially with a decrease in the initial FICO score.

    It’s like the time some guy in a new Porsche Cayman bumped into my 15 year old car while parking. We each had a tiny scratch. I said, “meh;” whereas the other guy threw a hissy fit.
    Okay, maybe it’s nothing like that at all :)

    I can tell you that my FICO score dropped about 120 points (form around 790 to 670) when some erroneous information about a mysterious account going into collections appeared on my reports. The really bad part is that Experian somehow confirmed that bad information (the other two agencies deleted it), and so far it’s still on my credit report.

  13. Wilma says:

    Getting the wrong info on your report taken off is time consuming and tedious. Letters and phone calls don’t always fix it right away. I had to write lots of “Cry Baby” letters when going for a mortgage because of erroneous info on my reports that weren’t fixed right away.

  14. Credit scores are so personalized, it’s hard to say the drop was solely because of opening a credit card. It’s like insurance. Two people with identical lives may pay different rates because of factors they did not consider. I’d like to see FICO confirm this fact before I took it as gospel.

  15. LMG10 says:

    In May I had a score of 761. Between then and now, I got a new credit card, a new mobile phone (and plan) and a new car with loan. I checked again today and I have had 4 hard inquiries: 1 credit card, 1 mobile company and 2 for the car (one from the dealer, and one from the bank the car loan is from). I understand that one shouldn’t do so much in such little time, but in my situation, it was kind of necessary. My payment habits have stayed the same. Anyway, my credit score only dropped 21 points and I won’t be doing anything that requires anymore hard inquiries for about a year.


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